RE:AC and US airlines’ FCF YieldGreat post. The valuation multiples, including P/FCF as you've detailed, are absurdly low. We have big gains coming as the Street will be forced to value shares more reasonably after Q2 and Q3 ERs.
Rouge10 wrote: Another way of evaluating AC and clearly see how undervalued the stock is. Compare FCF Yield for AC, UAL and DAL. AAL is not even in the comparison block.
In simple words, FCF yield (measured in %age) is the ratio of FCF/Market Cap. Higher the %age, more undervalued is the stock. US airlines, for most part are now (forecast) in the historical range (~8-10%) but AC is way out of the range.
See the tables below to calculate
FCF Yield. | | | FCF ($B) | | |
| Year | 2019 | 2023 | 2024 TTM | 2024 Forecast |
| UAL | $2.4 | -.26 | -.02 | $1.7 |
| DAL | $3.5 | $1.14 | $1.12 | $3.3 |
| AC | $2.0 | $2.75 | $2.8 | $2.4 |
FCF per year sourced directly from financial statements/forecasts. | Market Cap ($B) |
| Year | 2019 | 2023 | 2024 TTM | 2024 Forecast | @Stock price |
| UAL | $25.7 | $14.85 | $17.82 | $17.82 | $54.0 |
| DAL | $38.3 | $27.09 | $33.54 | $36.77 | $57.0 |
| AC | $13.6 | $6.40 | $6.4 | $6.4 | $17.8 |
Market cap sourced from google at given stock price | | FCF Yield (%) | |
| Year | 2019 | 2023 | 2024 TTM | 2024 Forecast |
| UAL | 9.4% | -1.8% | -0.1% | 9.5% |
| DAL | 9.1% | 4.2% | 3.3% | 9.0% |
| AC | 14.7% | 43.0% | 44.2% | 37.8% |
FCF yield calculated as FCF/Market cap. At current stock price, AC FCF yield is about 40%. In theory, it means AC can buy itself back in less than 3 years of FCF. Or an investor who buys out AC (at current price) will get their money back in less than 3 years + the airline with strong FCF. In comparison, for UAL and DAL it will take ~10 years.
Above doesn’t mean they have tons of FCF to squander but it simply means that their stock price is way under priced because of probably negotiations negative sentiment. Various future scenarios for sp are: - If AC was to behave like DAL and UAL (FCF yield ~10%) AC stock price should be in $65 range.
- If AC FCF Yield was around 15%, AC sp should be around $45. 15% FCF yield is a very attractive opportunity.
- And if 15% is not enough, @ FCF Yield of 20%, AC sp should be around $35.
AC needs to keep very tight control over the cost and continue to enhance FCF and ROIC. Only spend where and when it makes sense. Employees should be given stock ownership programs instead of
Demand As for demand, premium demand model (no longer only dependent on business class travel) is working strong. AC and DAL are very focused on this category. As per IATA, premium demand is on solid footing.