RBC: Target up at 25$ (from 23$)Air Canada (AC): Q2 estimate increased; price target increases to $25 (from $23); reaffirm Sector Perform rating.
We are raising our Q2/23 EBITDA estimate to $903MM from $820MM (consensus $895MM) solely on lower fuel prices. Our 2023E and 2024E EBITDA estimates move lower on increase in fuel curve in out years. Additionally, our 2024 estimates remain below consensus and guidance ($3.5B to $4B) as we see multiple headwinds facing the airline industry after the robust summer travel season. These include the sustainability of higher fares, increased new entrants, weakening leading indicators supported by our heatmap and increased costs. The key focus for us into the quarter will be on airfares, contract negotiations considering significant wage increases at peers, and trends in infrastructure delays.
Our target multiple increases on the robust summer travel demand and the positive impact of normalizing fuel prices to 5x (from 4.5x) and when applied to our 2024E EBITDA of $3,233MM results in our $25 price target