Canaccord Air Canada’s (AC-T) 28% stock decline over the past three months has created an attractive buying opportunity not seen since the heart of the pandemic, according to Canaccord Genuity analyst Matthew Lee, who upgraded his rating on the airline to “buy” from “hold.”
“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 to take advantage of what should be transient issues for the firm,” Mr. Lee said in a note to clients.
Mr. Lee did lower his price target on Air Canada, by C$2 to C$23, as he adjusted financial estimates for airline and aerospace stocks within his coverage because of the global economic challenges faced by the industry, including elevated fuel costs and continued pandemic-related restrictions.
But even with those downward revisions, he sees Air Canada attractively valued and “well positioned” for longer-term success.
“AC currently trades at 3.5x our fiscal year 2024 estimates, which is over 1x below U.S. peers. Our target of $23 (which equates to a 44% return) represents a 4.3x fiscal year 2024 multiple, which we believe is still modest and adequately accounts for current economic conditions,” the analyst said.
Mr. Lee also slashed his price target on Cargojet Inc. (CJT-T), to C$200 from C$250, commenting that cargo operators have begun seeing some demand slowdown globally as inflation weighs on consumer spending. In North America, cargo demand in May fell 5.7% on a year over year basis, even with a 6.8% capacity increase.
“With that said, we expect CJT to deliver robust growth driven by Canadian ecommerce expansion, added ACMI [Aircraft, Crew, Maintenance and Insurance] routes, and charter strength as the firm continues to fly aircraft to Shanghai multiple times per week,” he said.
He still rates Cargojet a “buy.”