Air Canada (AC) AI Stock Analysis

• Market Cap: $5.72B
• Dividend Yield: N/A
• Average Volume (3M): 3.43M
• Price to Earnings (P/E): 4.7
• Beta (1Y): 1.20
• Revenue Growth: 0.33%
• EPS Growth: -15.99%
• Country: CA
• Employees: 37,200
• Sector: Industrials
• Sector Strength: 83
• Industry: Airlines, Airports & Air Services
• EPS (TTM): 0.60
• Shares Outstanding: 65,107,330
• 10 Day Avg. Volume: 3,931,074
• 30 Day Avg. Volume: 3,430,237
• PEG Ratio: -0.20
• Price to Book (P/B): 3.34
• Price to Sales (P/S): 0.36
• P/FCF Ratio: 6.16
• Enterprise Value/Market Cap: 2.21
• Enterprise Value/Revenue: 0.56
• Enterprise Value/Gross Profit: 2.76
• Enterprise Value/Ebitda: 4.72
• 1Y Price Target: $26.24
• Price Target Upside: 35.82% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 12

• Rating: 71 Outperform
• Price Target: C$21.50 ▲(11.28% Upside)

Air Canada displays strong financial performance and strategic execution, with revenue and profitability improvements. The stock's undervaluation presents an opportunity, but technical indicators suggest caution due to potential short-term weakness. The earnings call confirmed solid growth, though challenges in certain markets persist.

Positive Factors

Demand and Bookings

Air Canada experienced a solid overall demand environment, with monthly screened passengers at Canada's largest airports rising each month.

Fleet Modernization

Air Canada aims to modernize its fleet with 87 new aircraft, which supports growth and improves competitive market positioning.

Management Outlook

Expect positive outlook from management with results buoyed by diverse revenues.

Negative Factors

Inflationary Pressures

Fleet growth and modernization alongside cost improvement programs should help mitigate elevated inflationary pressures and support margin improvement.

Leisure Travel Demand

Management noted that US/Canada transborder business demand is still strong, despite Canadian leisure volumes into the US remaining depressed.

Stock Volatility

Near-term volatility may arise as a result of the SIB expiry and heightened geopolitical risk.

Air Canada Business Overview & Revenue Model

Company Description

Air Canada provides domestic, U.S. transborder, and international airline services. It offers scheduled passenger services under the Air Canada Vacations and Air Canada Rouge brand name in the Canadian market, the Canada-U.S. transborder market, and in the international market to and from Canada, as well as through capacity purchase agreements on other regional carriers. As of December 31, 2021, the company operated a fleet of 175 aircraft under the Air Canada mainline brand name comprising 97 Boeing and Airbus narrow-body aircraft, and 78 Boeing and Airbus wide-body aircraft; 123 aircraft under the Air Canada Express brand name, including 50 Mitsubishi regional jets, 48 De Havilland Dash-8 turboprop aircraft and 25 Embraer 175 aircraft; and 39 aircraft under the Air Canada Rouge brand name consisting of 14 Airbus A321 aircraft, 5 Airbus A320 aircraft, and 20 Airbus A319 aircraft. It also provides air cargo services in domestic and U.S. transborder routes, as well as on international routes between Canada and markets in Europe, Asia, South America, and Australia. In addition, the company operates, develops, markets, and distributes vacation travel packages in the Caribbean, Mexico, the United States, Europe, Central and South America, South Pacific, Australia, and Asia; offers cruise packages in North America, Europe, and the Caribbean; and provides travel loyalty programs. Air Canada was founded in 1937 and is headquartered in Saint-Laurent, Canada.

How the Company Makes Money

Air Canada generates revenue primarily through the sale of airline tickets for passenger travel, which constitutes the largest portion of its income. The company also earns from ancillary services such as baggage fees, seat selection, and in-flight purchases, which have become increasingly significant as airlines diversify income streams. Additionally, Air Canada's cargo operations contribute to its revenue by transporting goods domestically and internationally. The airline benefits from strategic partnerships and code-sharing agreements, particularly through the Star Alliance network, which allow it to expand its market reach and optimize flight schedules. Furthermore, Air Canada's loyalty program, Aeroplan, provides another avenue for revenue generation through membership fees, partnerships with credit card companies, and the sale of points to third parties.

Air Canada Financial Statement Overview

Summary

Air Canada's financial performance shows a positive trajectory with strong revenue growth and profitability, despite high leverage. Efficient equity utilization supports a strong ROE, but the high debt-to-equity ratio poses financial risks. Cash flow metrics are generally solid, although free cash flow growth requires attention.

Income Statement

Air Canada shows a positive trajectory in its income statement with significant revenue growth from 2022 to TTM (Trailing-Twelve-Months). The gross profit margin for TTM stands at approximately 30.5%, indicating a healthy profitability relative to revenue. The net profit margin of about 7.6% reflects improved profitability compared to previous years. Despite the slight decline in EBIT margin from 5.7% in 2024 to 5.1% in TTM, the EBITDA margin remains strong at 13.3%, indicating effective cost management.

Balance Sheet

The balance sheet reveals a high debt-to-equity ratio of approximately 6.39 in TTM, indicating significant leverage. However, the return on equity (ROE) is strong at about 85.3% in TTM, illustrating efficient use of equity to generate profits. The equity ratio is relatively low at 6.2%, suggesting a high level of liabilities compared to assets, which could pose financial risks.

Cash Flow

Cash flow analysis for Air Canada reflects robust operational cash flow, with a solid operating cash flow to net income ratio of around 2.3 in TTM, signifying strong cash earnings. The free cash flow to net income ratio of about 0.63 indicates a moderate level of free cash generated relative to net income. However, the free cash flow growth rate shows a decline from 2024 to TTM, reflecting potential challenges in maintaining cash flow growth.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	22.34B	22.25B	21.83B	16.56B	6.40B	5.83B
Gross Profit	4.57B	5.46B	6.15B	2.80B	-1.62B	-2.31B
EBITDA	2.67B	3.04B	4.83B	1.00B	-1.65B	-2.39B
Net Income	1.48B	1.72B	2.28B	-1.70B	-3.60B	-4.65B
Balance Sheet
Total Assets	31.15B	31.21B	30.20B	29.51B	30.61B	28.91B
Cash, Cash Equivalents and Short-Term Investments	6.19B	6.98B	8.55B	7.99B	8.80B	7.50B
Total Debt	11.79B	12.67B	13.86B	16.31B	16.52B	12.99B
Total Liabilities	29.36B	28.82B	29.40B	31.06B	30.61B	27.20B
Stockholders Equity	1.79B	2.39B	796.00M	-1.55B	9.00M	1.72B
Cash Flow
Free Cash Flow	801.00M	1.29B	2.76B	796.00M	-2.64B	-3.56B
Operating Cash Flow	3.83B	3.93B	4.32B	2.37B	-1.56B	-2.35B
Investing Cash Flow	-881.00M	-1.36B	-1.83B	-2.50B	-1.87B	-733.00M
Financing Cash Flow	-2.64B	-2.87B	-2.37B	-1.61B	4.01B	4.70B

Air Canada Technical Analysis

• Technical Analysis Sentiment: Neutral
• Last Price: 19.32
• 50DMA: Negative
• 100DMA: Positive
• 200DMA: Positive
• MACD: Positive
• RSI: Neutral
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:AC, the sentiment is Neutral. The current price of 19.32 is below the 20-day moving average (MA) of 20.78, below the 50-day MA of 20.22, and above the 200-day MA of 19.29, indicating a neutral trend. The MACD of -0.46 indicates Positive momentum. The RSI at 40.99 is Neutral, neither overbought nor oversold. The STOCH value of 12.67 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for TSE:AC.

Air Canada Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
AC	71 Outperform	$5.72B	4.67	101.32%	―	0.33%	-15.99%
Sector *	58 Neutral	HK$13.23B	4.28	-2.97%	5.82%	2.91%	-48.85%
CAE	―	$9.17B	31.55	8.87%	―	―	―
BDRBF	―	$11.98B	26.29		―	―	―
MAL	70 Outperform	C$974.21M	24.36	5.12%	0.73%	8.59%	242.80%
CHR	59 Neutral	C$533.33M	―	2.81%	0.39%	-16.92%	77.04%
CGJTF	―	$1.15B	11.31	19.73%	1.35%	―	―