Air Canada (AC) AI Stock Analysis

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Air Canada

(TSX:AC)

Rating:73Outperform

Price Target:

C$21.00

▲(11.17%Upside)

Air Canada's stock is rated at 73, reflecting strong financial recovery and attractive valuation. The positive trajectory in revenue and profitability is tempered by high leverage and overbought technical indicators. The cautious outlook from the earnings call, amid market uncertainties, suggests moderate growth prospects. Overall, while the stock presents opportunities, investors should remain mindful of the financial risks and market dynamics.

Positive Factors

Bookings and Demand

Advanced ticket sales have increased significantly, indicating stable broader booking trends and strong demand.

Financial Performance

Medium-term growth framework is expected to support structurally higher free cash flow and shareholder distributions.

Market Position and Strategy

Air Canada's shift from a network restoration strategy to network optimization is anticipated to leverage its strong market position for growth.

Negative Factors

Capacity and Bookings

Transborder demand moderated with a drop in capacity and booking declines projected in upcoming quarters.

Capacity Challenges

There are reductions in capacity and challenges in US transborder bookings, but strategic actions have mitigated some of these impacts.

Macroeconomic Uncertainty

Transborder demand moderated, particularly amid trade and macroeconomic uncertainty.

Air Canada (AC) vs. iShares MSCI Canada ETF (EWC)

Market Cap

$6.66B

Dividend YieldN/A

Average Volume (3M)3.66M

Price to Earnings (P/E)4.0

Beta (1Y)1.18

Revenue Growth0.24%

EPS Growth-23.10%

CountryCA

Employees37,200

SectorIndustrials

Sector Strength95

IndustryAirlines, Airports & Air Services

Share Statistics

EPS (TTM)-0.45

Shares Outstanding102,314,030

10 Day Avg. Volume3,604,148

30 Day Avg. Volume3,662,463

Financial Highlights & Ratios

PEG Ratio-2.26

Price to Book (P/B)3.10

Price to Sales (P/S)0.00

P/FCF Ratio6.12

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$23.28

Price Target Upside23.23% Upside

Rating ConsensusStrong Buy

Number of Analyst Covering11

Air Canada Business Overview & Revenue Model

Company DescriptionAir 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 MoneyAir Canada generates revenue primarily through the sale of airline tickets for both passenger travel and cargo transportation. Passenger fares constitute the largest portion of its income, with supplementary revenue from additional services such as seat selection, checked baggage fees, in-flight food and beverage sales, and travel insurance. The company also earns money through its Aeroplan loyalty program, which partners with various brands and financial institutions to offer rewards and benefits, thereby incentivizing frequent travel. Cargo operations further contribute to revenue by transporting goods across Air Canada's extensive route network. Strategic partnerships and alliances, such as its membership in the Star Alliance, enable code-sharing and joint ventures, expanding its market reach and optimizing operational efficiencies.

Air Canada Earnings Call Summary

Earnings Call Date:May 08, 2025

(Q1-2025)

% Change Since: 23.46%|

Next Earnings Date:Jul 31, 2025

Earnings Call Sentiment Neutral

Despite facing challenges such as an operating loss, passenger revenue decline, and reduced demand in the transborder market, Air Canada maintained a stable revenue stream and exhibited strong performance in areas like Aeroplan and cargo. Their effective cost management, balance sheet strength, and strategic network diversification are positive indicators, even as they navigate market uncertainties.

Q1-2025 Updates

Positive Updates

Stable Revenue and Advanced Ticket Sales Growth

Air Canada reported first quarter revenues of $5.2 billion, which were essentially the same as last year. Advanced ticket sales grew by $1 billion from the end of 2024, driving $1.5 billion in cash from operations and $831 million in free cash flow generation in the quarter.

Strong Performance in Key Areas

Third-party billings at Aeroplan continued to be very strong, growing 7% year-over-year. Also, cargo revenues increased 16% to $250 million from the previous year.

Cost Management and Balance Sheet Strength

Air Canada launched a $150 million cost reduction program for 2025. They reported a net leverage ratio of 1.3%, and completed a share buyback program with 35.8 million shares purchased and canceled.

Network Diversification and Capacity Reallocation

Air Canada's diversified network allowed for effective capacity reallocation in response to demand changes. New routes such as Montreal-Edinburgh and expansion into Latin America were announced.

Negative Updates

Operating Loss and Passenger Revenue Decline

Air Canada experienced an operating loss of $108 million. Quarterly passenger revenues totaled $4.3 billion, a decrease of 3% year-over-year.

Decline in Transborder Market

There was a reported decline in interest among Canadians for travel to the U.S., with booking declines on the transborder market in the low-teens over the next 6 months.

Operational Challenges

The company faced operational disruptions due to two major winter storms and maintenance challenges with the Airbus A220 fleet. These disruptions had an estimated EBITDA impact of CAD35 million for the quarter.

Updated Guidance Reflecting Market Uncertainty

Air Canada updated its full-year guidance, now expecting 2025 adjusted EBITDA to be between $3.2 billion and $3.6 billion, considering recent market trends and expectations.

Company Guidance

During Air Canada's first quarter 2025 results call, the company provided updated guidance reflecting a cautious outlook due to ongoing market uncertainties. The airline reported first quarter revenues of $5.2 billion, with an operating loss of $108 million and adjusted EBITDA of $387 million, surpassing market expectations. Despite challenges, including a 3% year-over-year decline in quarterly passenger revenues to $4.3 billion and a 5% reduction in transborder revenue, Air Canada highlighted several positive metrics. Advanced ticket sales grew by $1 billion, contributing to $1.5 billion in cash from operations and $831 million in free cash flow. The company maintained its full-year guidance, projecting adjusted EBITDA between $3.2 billion and $3.6 billion, and outlined a $150 million cost reduction program. The guidance also factored in a slight moderation in capacity growth, with ASMs now expected to increase by 1% to 3% for the year. Despite the challenges, Air Canada remains focused on strategic capacity adjustments and cost management to navigate the uncertain environment while targeting long-term commitments.

Air Canada Financial Statement Overview

Summary

Air Canada shows a positive recovery trajectory with significant revenue growth and healthy gross profit margin. While the high debt-to-equity ratio indicates significant leverage, a strong ROE reflects efficient equity utilization. Cash flow metrics are solid, but there is a need for attention to free cash flow growth. Overall, the financial statements indicate a strong recovery, though vigilance on debt levels and cash flow is advised.

Income Statement

Positive

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

Positive

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

Positive

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.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
22.23B	22.25B	21.83B	16.56B	6.40B	5.83B
	Gross Profit
6.77B	5.46B	6.15B	2.80B	-1.62B	-2.31B
	EBIT
1.14B	1.26B	2.28B	-187.00M	-3.05B	-3.78B
	EBITDA
2.95B	3.04B	4.83B	1.00B	-1.65B	-2.39B
	Net Income Common Stockholders
1.70B	1.72B	2.28B	-1.70B	-3.60B	-4.65B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
7.09B	6.98B	8.55B	7.99B	8.80B	7.50B
	Total Assets
31.95B	31.21B	30.20B	29.51B	30.61B	28.91B
	Total Debt
12.73B	12.67B	13.86B	16.31B	16.52B	12.99B
	Net Debt
9.37B	10.15B	11.04B	13.61B	12.28B	9.33B
	Total Liabilities
29.96B	28.82B	29.40B	31.06B	30.61B	27.20B
	Stockholders Equity
1.99B	2.39B	796.00M	-1.55B	9.00M	1.72B
Cash Flow		Free Cash Flow
1.07B	1.29B	2.76B	796.00M	-2.64B	-3.56B
	Operating Cash Flow
3.86B	3.93B	4.32B	2.37B	-1.56B	-2.35B
	Investing Cash Flow
-1.51B	-1.36B	-1.83B	-2.50B	-1.87B	-733.00M
	Financing Cash Flow
-1.73B	-2.87B	-2.37B	-1.61B	4.01B	4.70B

Air Canada Technical Analysis

Technical Analysis Sentiment

Positive

Last Price18.89

Price Trends

50DMA

15.70

Positive

100DMA

16.88

Positive

200DMA

18.34

Positive

Market Momentum

MACD

1.08

Positive

RSI

66.24

Neutral

STOCH

71.74

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:AC, the sentiment is Positive. The current price of 18.89 is above the 20-day moving average (MA) of 18.04, above the 50-day MA of 15.70, and above the 200-day MA of 18.34, indicating a bullish trend. The MACD of 1.08 indicates Positive momentum. The RSI at 66.24 is Neutral, neither overbought nor oversold. The STOCH value of 71.74 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for TSE:AC.

Air Canada Peers Comparison

Overall Rating

UnderperformOutperform

Sector (65)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
AC	73 Outperform	$6.66B	4.01	132.28%	―	0.24%	-23.10%
Sector *	65 Neutral	$4.45B	12.15	5.28%	248.12%	4.08%	-12.23%
CAE		$8.25B	28.39	8.87%	―	―	―
BDRBF		$6.69B	24.67		―	―	―
MAL	77 Outperform	C$963.93M	24.10	5.12%	0.58%	8.59%	242.80%
CHR	52 Neutral	C$552.30M	―	-0.09%	―	-17.58%	-703.93%
CGJTF		$1.03B	11.90	15.65%	1.44%	―	―

* Industrials Sector Average

Performance Comparison

TSE:AC

Air Canada

18.89

0.53

2.89%

CAE

26.87

8.39

45.40%

BDRBF

Bombardier

68.44

3.16

4.84%

TSE:CHR

Chorus Aviation

20.81

4.71

29.25%

TSE:MAL

Magellan Aerospace

16.87

8.85

110.35%

CGJTF

Cargojet

66.63

-13.24

-16.58%

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.