National Bank's analysis - Feb 19thMaintain Outperform; target lowered to $11.50
The stock is trading at just 3.4x 2016 EV/EBITDAR. This compares with the U.S. legacy peers’ 2016 average of 4.1x. On P/E, the stock is trading at just 2.5x 2016 earnings, well below the U.S. peers at 7.2x. Based on our updated forecast, our new target is $11.50, down from $13.50 previously.
Although Air Canada’s cost guidance is worse than our forecast and we are disappointed to see the company provide less frequent disclosure on capacity and traffic, we nevertheless maintain our Outperform rating as we believe the current valuation is reflecting a highly pessimistic end market scenario for 2016. Indeed, while there are pockets of weakness for Air Canada, overall demand for air travel continues to be resilient supported by strong 6th freedom traffic growth from the United States and inbound traffic to Canada. Furthermore, lower fuel prices are helping to offset cost pressure from the weak CAD.
The stock is trading at just 3.4x 2016 EV/EBITDAR. This compares with the U.S. legacy peers’ 2016 average of 4.1x. On P/E, the stock is trading at just 2.5x 2016 earnings, well below the U.S. peers at 7.2x.
We value the stock by applying a 4.5x EV/EBITDAR multiple to our forward four quarter forecast. Based on our updated forecast, our new target is $11.50, down from $13.50 previously.