Lorimer Wilson Blog | Air Canada Stock Price Could See Additional Lift Despite Its Current Lofty Altitude | Talkmarkets
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Air Canada Stock Price Could See Additional Lift Despite Its Current Lofty Altitude

Date: Sunday, September 10, 2017 3:29 AM EST

Written by SmallCapPower.com

Aided by strong financial and operating performance, shares of Canada’s largest airline, Air Canada (TSX: AC), have run up sharply over the past year and currently trade at life-time high of $22.65 Canadian. Over the past three months, shares of Air Canada have gone up 27% while the one-year change is a whopping 149%. Despite such a large move, valuations of Air Canada look attractive versus its Canadian and U.S. peers. With a robust outlook for 2017 and beyond on a favourable economic environment and growing international exposure, long-term investors could dabble at the stock at current levels.

Investment Thesis

  • Canada’s largest airline continues to deliver strong operating and financial performance
  • International expansion to drive future growth
  • Stronger balance sheet and FCFs should support Capex plans

Canada’s largest airline

Headquartered in Montreal, Air Canada is Canada’s largest airline and ranks among the 20 largest airlines globally. The airline, along with its Air Canada Express regional partners, carried ~45 million passengers, offering direct passenger service to over 200 destinations on six continents. Air Canada has a fleet of 300 mainline and regional aircraft.

Increasing focus on international expansion

Leveraging its extensive and expanding global network along with faster service and lower rates vis-à-vis U.S. airlines, Air Canada continues to focus on selective international expansion. As part of this plan, the Company launched 28 new routes in 2016 and announced more than 20 new routes for 2017. Over 90% of projected capacity growth going forward is aimed at International markets. Air Canada notes that international traffic offers higher margins as incremental traffic is being flown at a significantly lower cost (B787s, increased seats on B777s, and Air Canada Rouge).

To support its aggressive international expansion, Air Canada is renewing its international fleet with fuel efficient Boeing 787 Dreamliners. The Company plans to operate 30 Boeing 787 Dreamliners by the end of 2017, including 22 larger Boeing 787-9 versions, with all 37 scheduled for delivery by 2019 year end.

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