On Monday, Stifel Canada signaled a positive shift in its outlook for Air Canada (AC:CN) (OTC: ACDVF), upgrading the airline's stock from Hold to Buy and raising the price target to Cdn$25.50, up from Cdn$20.00. The upgrade comes amidst a series of favorable conditions observed by the firm, suggesting an accelerated recovery for the airline.
According to Stifel Canada, the decision to upgrade was influenced by a number of factors indicating a stabilizing environment for the carrier. These include a more balanced capacity outlook, the benefit of declining fuel prices, and a stable demand for leisure travel. The firm anticipates a healthy travel outlook for the next three quarters, with business travel on the rebound and the restoration of high-margin routes to the Asia-Pacific region.
The firm also noted Air Canada's plans for capital returns, highlighting the company's potential to re-leverage its balance sheet up to around 1.5 times. This is supported by expectations for a break-even or positive free cash flow (FCF) by 2025.
Despite a significant recovery in Air Canada's stock price, which has gained over 40% since its August lows, the airline's shares are still perceived to be undervalued, trading at 3.1 times EBITDA. This is notably below its pre-pandemic average of 3.9 times and well beneath the 5.7 times EBITDA of its U.S. counterparts.
The analyst's commentary underscores the factors contributing to the more bullish stance on Air Canada, citing the airline's active approach to capital management and the favorable industry dynamics. The airline's management has highlighted the potential for positive free cash flow by 2025, which is seen as a key metric for the company's financial health and growth prospects.
In summary, Stifel Canada's upgraded rating and increased price target for Air Canada reflect optimism about the airline's future performance. The firm's analysis points to several positive trends, including a rationalizing market environment, falling fuel costs, and a recovery in travel demand, which collectively support the potential for stock price appreciation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.