While two analysts hiked their price targets for Air Canada (AC.TO) after the airline unveiled 2025 and long-term targets at its investor day this week, shareholders “came away disappointed,” with the stock dropping around 12 per cent since Monday.
Air Canada released its near- and long-term financial targets on Tuesday, aiming for a 36 per cent jump in 2028 operating revenue, in part due to strong demand for leisure travel across domestic and international routes. The airline forecast that its 2025 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would be in the range of $3.4 billion to $3.8 billion.
While the forecast was roughly in line with analysts’ estimate of $3.63 billion, according to data compiled by LSEG, TD Cowen analyst Tom Fitzgerald wrote in a note to clients on Wednesday that “our sense is that investors were looking for EBITDA between $3.7 billion and $4 billion next year.” He also says that the outlook for free cash flow margins and capital expenditure details “disappointed versus expectations.”
“All told, we believe investors were looking for a bigger announcement and came away disappointed,” Fitzgerald wrote.
“Others viewed the language around 2028 and 2030 aspirations not being guidance as indicative that the company lacks conviction in its plan. It’s possible the company is not trying to set the bar too high for itself, and it ends up outperforming these metrics.”
Investor sentiment was negative following the release of the long-term targets on Tuesday, with shares falling nine per cent on that trading day. Shares slipped again on Wednesday, and were trading flat as of Thursday morning. Since Monday’s close, Air Canada’s stock is down about 12 per cent, erasing gains made since early November.
Still, some analysts say the targets Air Canada released are “realistic” and see opportunity ahead for the company, with at least two raising the price target for Canada’s largest airline.
“We attribute the sell-off to profit-taking following a ~55.0 per cent rally in the shares since Oct. 1, with a near-term outlook in line with expectations. We would remain buyers on the weakness given healthy demand conditions, the renewed buyback program, and a significant discount to US peers,” ATB Capital Markets analyst Chris Murray wrote. He reiterates an “outperform” rating for Air Canada, and increased his one-year price target from $28 per share to $31 per share.
BMO Capital Markets analyst Fadi Chamoun reiterates an “outperform” rating for the airline’s stock and also hiked his price target from $29 per share to $31 per share. He characterizes Air Canada’s medium-term framework as “realistic as it leverages the company’s strong competitive moat and strategic position within the Canadian airline industry, and more specifically, capitalizes on its leading position in international and premium travel markets.”
