Future SP: TD Report
Folks too focused on seeing immediate sp increase. Fear has to subside; people need to be vaccinated. Once investors see this happening, AC and other airlines will fully recover sp, imo. If you can be patient for next 6-12 months, AC should reward investors with minimal downside risk.
TD report issued today states: "Despite short-term trends, we continue to believe that 2019 levels of air travel will befully recovered in 2023."
Full report:
We are lowering our H1/21 financial forecasts to reflect our updated assumptionsregarding the impact of the second wave and recently introduced COVID-19 testingrequirements on travelers entering Canada.
Impact: SLIGHTLY NEGATIVE
We are maintaining our BUY recommendation and $28.00 target. The requirementfor a negative COVID-19 PCR test within 72-hours of boarding a flight bound forCanada (in addition to 14-day quarantine requirement) is already showing signs ofsignificantly impacting Canadian air travel demand.
WestJet announced plans thismorning to operate 80% less capacity in February and March relative to 2020, a 30%reduction from previous plans.Air Canada is trading at 4.7x 2022 consensus EBITDA and almost 30x adjusted EPS,unprecedented multiples for Air Canada. This valuation combined with Air Canada'smodest share price response to extremely negative indications for short-term airtravel demand suggests that the market is not concerned about short-term forecastrevisions, and is either focused on 2023, or believes that consensus forecasts for2022 are far too low (our view). Either way, we caution investors that with the shareprice appearing to focus on the long-term recovery potential without regard for whatwe believe will be weaker-than-currently expected financial results (by consensus)for Q4/20 and Q1/21, the stock could be susceptible to significant short-term volatility.
Despite short-term trends, we continue to believe that 2019 levels of air travel will befully recovered in 2023. Our financial forecasts for 2022 and 2023 are significantlyhigher than consensus. Once we emerge from the current period of volatility, andwhat we expect will be downward revisions to short-term consensus expectations,we believe that our longer-term forecast margins and earnings will look increasinglyrealistic and ultimately take the share price higher.
TD Investment Conclusion
Air Canada is trading at an attractive valuation when considering its earningspotential in 2022 and beyond. Based on our current assumptions regarding theimpact from COVID-19, we believe that Air Canada's strong liquidity, capacity cuts,and limited debt-repayment requirements will allow it to navigate this challengingenvironment and reward investors who decide to ride-out the current volatility and elevated risk.