Air Canada T.AC

Alternate Symbol(s): ACDVF

Industrials Airlines

Air Canada is an airline company. The Company is a provider of scheduled passenger services in the Canadian market, the Canada-United States (U.S.) transborder market and the international market to and from Canada. It provides scheduled service directly to more than 180 airports in Canada, the United States and internationally on six continents. The Company’s Aeroplan program is Canada's premier travel loyalty program, where members can earn or redeem points on the airline partner network of 45 airlines, plus through a range of merchandise, hotel and car rental rewards. Its freight division, Air Canada Cargo, provides air freight lift and connectivity to hundreds of destinations across six continents using its passenger and freighter aircraft. Its Air Canada Vacations is a tour operator, which is engaged in developing, marketing, and distributing vacation travel packages in the outbound/inbound leisure travel market. Air Canada Rouge is Air Canada's leisure carrier.

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Air Canada > TD: Target return at 30$ (from 28$)

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Post by lb1temporaryon May 10, 2021 8:21am

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Post# 33163570

TD: Target return at 30$ (from 28$)

Q1/21; Canada Poised for Loosening Restrictions & Travel Rampup

Event

Air Canada reported Q1/21 EBITDA of -$763 million vs. TD/consensus (ex-outliers) at -$663 million/-$682 million. Cash burn/day was $14 million vs. our estimate of $14 million and guidance of $15 million-$17 million/day.

Impact: SLIGHTLY POSITIVE

We are upgrading Air Canada to BUY from Hold and increasing our target price to $30.00 from $28.00. The higher target price is due to a slight increase to our valuation period (2023) forecast EBITDA and EPS resulting from lower forecast net debt and the impact of one less quarter of discounting our year-end 2022 equity value. We believe that recent share price weakness provides an attractive entry point that may not last long based on our expectation for positive catalysts in the coming months:

We believe that declining COVID-19 cases in Canada and a rapidly increasing proportion of the population that is vaccinated will be positive for sentiment towards the stock,

We believe that the declining cases and vaccination program will lead to loosening travel restrictions from regulators,

We anticipate that these factors will unleash pent up demand for domestic and select international flights driving bookings (deposits) significantly higher,

We believe that Air Canada's guidance for $13 million-$15 million/day in Q2/21 net cash burn will prove to be conservative based on our expectation for significantly improving conditions in the last month of the quarter. Despite the challenging environment, we believe that Canada will reach 2019 domestic leisure travel demand in 2022 and international leisure travel behaviour in 2023. Our target price is based on relatively high valuation multiples, which we currently believe is appropriate, given our expectation for an approaching period of positive catalysts that will take the share price higher.

TD Investment Conclusion

Air Canada is trading at an attractive valuation when considering its earnings potential in 2023 and beyond. Based on our current assumptions regarding the impact from COVID-19, we believe that Air Canada's liquidity, capacity cuts, and limited debt-repayment requirements will allow it to navigate this environment and reward investors who decide to ride out the current volatility and elevated risk.