Toronto-Dominion Bank analyst Tim James continues to be bullish on Air Canada (TSX:AC), especially after the company’s strong first quarter results.
In a research note to clients, James had many positive things to say about the company. He raised his target price for the company from $21 to $24, which represents potential upside of 65% versus today’s levels.
James wrote "in our view, Air Canada’s valuation remains very attractive based on any metric or comparison, particularly when considering its achievements over the past five years and its growth potential."
He was also a fan of the company’s recently released first quarter results. Revenue shot 8.9% higher compared to the same quarter last year, the strongest revenue growth since 2014. EBITDAR – a key measure of profitability in the airline industry – was $342 million in the first quarter. EBITDAR margin was 9.4%, which exceeded expectations.
Air Canada also told investors it planned to generate free cash flow between $200 and $500 million in 2017. Air Canada shares have a market cap of $3.98 billion today, meaning the company is attractively valued if it can deliver results closer to the top of that range.
James also thinks an eventual slowdown in capacity will be a positive thing for Air Canada shares. Investors are skeptical growth will continue, especially amid the backdrop of a struggling Canadian economy. In other words, investors could give Air Canada a higher valuation once it starts to perform as expected.
Air Canada shares increased $0.42 each or 2.9% to $14.51 during early Tuesday afternoon trading, primarily on the bullishness of the report.
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