Among Canadian Airlines, the options are few and far between; the two dominant players in the Canadian airline sector, Air Canada (TSX:AC) and WestJet Airlines Ltd. (TSX:WJA) both trade at relatively cheap valuations compared to their global counterparts at today’s levels, making these two companies which are interesting value plays to consider in a market filled with heightened valuation multiples.
Air Canada currently trades at a price to earnings (P/E) ratio of 9.1, with WestJet’s P/E ratio sitting at 12.2. These fundamental ratios compare relatively favorably to U.S.-based airlines which trade in a similar range, albeit with attractive growth opportunities given the recent appreciation of the Canadian dollar relative to a basket of global currencies.
The Canadian airline sector is one which is relatively protected from competition, and as an oligopoly of sorts, both Air Canada and WestJet benefit from the ability to charge rates which ascribe higher operating and profit margins when compared to their peers.
Despite carrying relatively large debt loads and small (or in the case of Air Canada, nil) dividends, both airlines stand to benefit from persistently low oil prices, moderate global economic growth, and an increase in commuter transit moving forward.
It appears that both Air Canada and WestJet have finally caught up to their peers in terms of valuation multiples; it remains to be seen, however, how potent these two firms’ earnings growth will be in the coming quarters, as this will largely determine the stock price trajectory of these two companies in the medium-term.
Invest Wisely, my friends.
Related Stories
