With its shares down by about 12%, Air Canada (TSX:AC.B) is one of the worst performers in the Canadian market today. The company pre-announced first quarter results this morning so that it could share the numbers with lenders in talks on financing options. An operating loss of $106 million in the first quarter vs. a year-ago loss of $91 million is expected.
Weather-related flight cancellations, operational challenges, a higher proportion of leisure passengers vs. business, and an unfavourable FX impact were provided as reasons for the expected loss.
It’s about time
Air Canada’s stock has been a high-flier over the past year, up just a shade under 210%. Given the financial risk that surrounds this name, this move feels more like luck than skill to this Fool.
At the end of 2012, the company had net debt of about $2 billion on its balance sheet and a pension liability that measured $4.7 billion. Total financial obligations of $1.69 billion are due in 2013 and based on 2012 free cash flow of $187 million, they’re going to have to rely on the kindness of others to make ends meet. Simply, the financial obligations carried by this company outweigh the economics of the business.
To lend support to this observation, Air Canada has gone from having a book value per share of about $24 at the end of 2007 to a current (before this release) book value of -$12.41. About $5 billion in shareholder’s equity has been destroyed over this period. Not ideal!
Do yourself a favour
If you’re compelled by the “opportunity” presented by airline stocks, consider Westjet (TSX:WJA). With a book value per share that has grown from $7.33 to $10.75 since the end of 2007, net cash of about $700 million and no pension liability, Westjet at least has a balance sheet that resembles a viable enterprise.
Canadian investors deserve to own great businesses and the U.S. market is home to some of the best in the world. We have created a special report that identifies 3 U.S. businesses that are worthy of your hard earned investment dollars. Simply click here to receive “3 U.S. Stocks Every Canadian Should Own” – FREE!
Fool contributor Iain Butler does not own any of the companies mentioned in this report at this time. The Motley Fool does not own shares in the companies mentioned.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.