Raymond James bashing The stock getting killed again today as the most negative analyst on the street has lowered his target to $7. I have been following this fellow for awhile, and a couple of points I would like to make:
- he gives no justification to his target. As he shows in his own research, the stock is already trading at a big discount to US peers. Its impossible that only one airline faces price pressures.
- his bearish view is based on anecdotal evidence of over-capacity, as he admits. But he doesn't explain why it has not allowed him to be more accurate in his forecasts this year. He talks about price presure on routes dating back to 2014, this is not new. But for Q3, he had forecast EBITDAR of $931 million and the company achieved $1.1 billion. Why so wrong?
- Even in this lastest note he doesn't point out that he has again RAISED his EBITDAR forecast for Q4.
- His low on the street estimate of 2016 EPS for AC is $2.74. If the stock goes to $7, it will be a PE of 2.6x. How does that make sense? US airlines, according to him, trade at 7x PE. And I expect, as in the past, he will have to raise his forecasts.
- In his anecdotal YVR-LAX story, he notes AC had to reduce capacity due to price competition from DAL. So AC acted rationally, which is good. So why does he think they could not adjust similarly in the future? Again, based on the great financial results, it seems to me mgmt can manage the situation.
- There is nothing in his report about the traffic AC is gaining from US carriers due to the weak C$, this is a material benefit to them, and helps to justify the added capacity.
- analysts at RBC, TD and CIBC all disagree with the RJ view. This is a minority opinion, that scares people in a bad market.
OK, I am finished venting for now. Hopefully Mr Cheriavsky will read this.