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Jul 12, 2022

Canaccord upgrades Air Canada amid 'attractive buying opportunity'

There are a number of positive catalysts built into Air Canada right now: Analyst

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An analyst at Canaccord Genuity Group Inc. upgraded his Air Canada rating to a buy on the premise that the airline’s recent share decline has now created an “attractive buying opportunity not seen since the heart of the pandemic.”

In a note to clients Tuesday, Canaccord Analyst Matthew Lee boosted his rating to a buy from a hold, while reducing his share price target to $23.00 from $25.00.

“We see many of the current headwinds (fuel, airport management, staffing) as transient and given that the Canadian market is generally six months behind the U.S. market, we believe AC will likely not see the same demand slowdown of its U.S. peers,” Lee said.

“We have upgraded AC but reduced our target to $23 on account of reductions in our EBITDA (earnings before interest, taxes, depreciation, and amortization) forecast.”

Lee added that easing restrictions in Canada and the U.S., the rise of business travel and price increases amid higher fuel costs are all positive factors that could support Canada’s largest airline in the long-term.

“Air Canada’s near-term challenges have had an overly punitive impact on shares. Over the prior year, AC shares have traded in line with U.S. network peers, which we believed was somewhat aggressive given its slower recovery trajectory and greater reliance on international travel,” Lee said.

“However, with a torrent of recent negative headlines weighing heavily on AC shares, we opine that there is now a window for investors with a longer time horizon.”

Air Canada claimed the top spot globally for airline delays for much of last week, according to tracking service FlightAware. 

Many airlines have struggled with the surge of travelers looking to take flight as COVID-related restrictions ease. A number of factors such as overbooked seats and staffing shortages have resulted in flight cancellations, delays and seemingly endless queues.

 

'COMPELLING' RISK-REWARD

But Lee isn’t the only analyst that’s looking beyond travel delays and is optimistic about Air Canada’s current valuation.

Last week, Raymond James Analyst Savanthi Syth lowered her earnings forecast for the airline and cut her price target to $23.00 per share from $30.00, but maintained her outperform recommendation (equivalent of a buy).

"While we acknowledge that it will be difficult for shares to outperform until street estimates reset lower, we believe the risk-reward is compelling at current levels, particularly given Air Canada’s strong liquidity position," Syth wrote in a note to clients.

From the 16 analysts tracked by Bloomberg, 12 have buy recommendations on Air Canada and four have a hold.