(Image via aircanada.com.)
Troubles for Canada’s top airline under the era of the COVID-19 coronavirus pandemic are not over yet and market experts likely wonder when the long-game could start paying off for investors.
Starting today, April 27
th 2020,
Air Canada Inc. (TSX: AC) has
suspended scheduled service to the United States until May 22
nd, (barring further unforeseen closures). This is in response to the extended border closure between Canada and the US.
It was just
a month ago when Stockhouse Editorial laid out a case for why Air Canada is a solid-performing stock based on its performance over the years, versus the current instability with the airline (and travel) sector. Given the coronavirus crisis, stock analysts are looking at this as a long-term pick, under the assumption that people need to fly, both domestically and internationally, at some point in the future and the virus’ restrictions on our lives should subside eventually. AC stock was the #1 Canadian travel pick and is a serious bargain right now.
After achieving its 52-week high in early 2020, its stock value had nose-dived more than 65%, but on the other side, it nearly doubled its recent $9 lows. The airline began 2020 with a market capitalization of nearly $21 billion, but now sits at just $4 billion.
In a move to preserve at least $500 million in cash, Air Canada began a company-wide cost-cutting and capital deferral program — including workforce reductions. The company had suspended share buybacks and drawn down its $600 million (USD) revolving credit facility, while it works with several unidentified parties to raise more liquidity.
This was laid out
in a news update for investors, where AC CEO Calin Rovinescu said -
“COVID-19 presents the global airline industry with unprecedented challenges, compounded by uncertainty as to the extent of its effects.”
Though expectations are that the stock will rebound once business improves, it is hard to predict when that is, given the cascading series of bad news stories. Things should turn around; it is just question of when and by how much.
Investors will be counting on capital gains out of Air Canada since it doesn’t pay cash dividends. This means if it attempts another major restructuring of its business, or receives a government bailout, its share price could take-off as soon as the pandemic ends, or positive news indicates a return to business as usual.
The company will likely address its share performance and service suspensions during its Q1 2020 conference call for analysts next Monday, May 4th. It is open for the public to listen in and you can find dial-in details
here.
In lighter news, Air Canada is using its jets to transport
relief supplies to countries in need across the globe.
Do you think you would take advantage of this valley in Air Canada’s shares? Plan
on waiting it out to see if shares fall even lower? Or is there no turning back for this airline? Let us know in the comments below.