RBC RBC Dominion Securities analyst Walter Spracklin raised his fourth-quarter 2023 earnings expectation on Monday for Air Canada to reflect lower fuel costs.
“We are increasing our Q4/23 estimate to $524-million (from $439-million) vs consensus of $539-million, strictly on the benefit from lower fuel prices,” he said. “For 2024, we previously anticipated a return to 2019 capacity levels by 2024. However, given the robust capacity ramp-up over the last two years, OEM delays, and MRO slowdowns, we reduce our capacity assumption for AC to a decline of 3 per cent vs. 2019 (or up 10 per cent year-over-year). Our 2024 estimate of $3.209-billion remains below consensus of $3.765-billion and guidance of $3.5-billion to $4-billion as we see multiple headwinds facing the airline industry, including the sustainability of higher fares, increased new entrants, and higher labour costs.
“Given the challenging operating environment (supply-chain challenges, MRO delays, high costs, and geopolitical downside risks), we believe AC will leave 2024 EBITDA guidance unchanged.”
Maintaining a “sector perform” rating for Air Canada shares, he raised his target by $1 to $18. The average is $29.95.
Mr. Spracklin and colleague James McGarragle maintained their ratings and targets for the other stocks in the sector, which are:
- Bombardier Inc. with an “outperform” rating and $98 target. Average: $77.87.
- CAE Inc. with an “outperform” rating and $34 target. Average: $35.17.
- Chorus Aviation Inc. with an “outperform” rating and $3.75 target. Average: $3.67.
- Exchange Income Corp. with an “outperform” rating and $65 target. Average: $63.25.
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“Our Cdn Airlines & Aerospace Heatmap powered by RBC Elements points to continued weak leading indicators and robust coincident indicators,” the analysts said. “In addition, we note Cdn/US airfare CPI continues to trend negatively, directionally supported by our proprietary Canadian Airfare Index. Key given US peers’ guidance is predicated on continued higher fares to offset the higher cost environment due to new labour agreements and MRO costs. Overall, we expect guidance updates in Q4 with details of each below. We like the set-up for BBD into 2024; which based on our estimates means that the 2025 (multi-year) guide is also looking increasingly conservative with risk to the upside, in our view.”