Air Canada Beats Estimates, Stock Soars

One day’s gain doesn’t make for a great long-term thesis.

The Motley Fool

Air Canada’s (TSX:AC.B) stock is flying on Wednesday after announcing better than expected quarterly results.

With just over an hour in trading to go, the stock sits up a tidy 25% after more than 8 million shares have traded hands thus far.  That’s a slight increase over the typical 1.1 million or so that trade on an average day.

Capital IQ indicates that normalized earnings for our national airline came in at $0.41 vs. an estimate of $0.13.  The company exceeded estimates on the top line as well, as quarterly revenues checked in at $3.057 billion vs. the estimated $3.018 billion.  Incidentally, this was the best second quarter revenue ever.

Increased sales of inflight earphones have been attributed to this beat.  Not really.

Positive year-over-year yield growth of 1.5% was no doubt a factor in this huge move by the stock, particularly after WestJet (TSX:WJA) reported that yield growth had turned negative in the Q2’13.

Cost containment was another big positive.  Management now expects costs to be down 1% to 2% in 2013 vs. the projected -0.5% to -1.5%.  Lower maintenance costs appear to be behind this improved forecast.

Maintenance is precisely the area that frequent flyers are happy to see costs being contained.  Again, not really.

The Foolish Bottom Line

If you bought Air Canada shares yesterday and sold them today, congratulations, you are in the minority of investors that have ever made money on an airline stock.  While the company appears to be flying along smoothly at the moment, you can almost bet that it won’t always be so.  And with a still wonky balance sheet that carries more than $3 billion of debt and negative equity, Air Canada faces significant long-term financial risk alongside the implied business risk that its industry holds.  Investors beware!

Hate business risk?  And financial risk?  You’re not alone.  That’s why we’ve created a special FREE report that profiles 3 companies that are so dominant that these risks hardly apply.  Click here now to download “3 U.S. Companies That Every Canadian Should Own”.  It’s free!

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any company mentioned at this time.  The Motley Fool doesn’t own shares in any of the companies mentioned.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

A shopper makes purchases from an online store.
Investing

Best Stock to Buy Right Now: Shopify vs Lightspeed Commerce?

Let’s examine Shopity and LSPD to determine a better growth stock to buy right now.

Read more »

concept of real estate evaluation
Dividend Stocks

Why the Market Should Stop Hating on This Reliable REIT

You can get a lot of dividend income with an investment in Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »

Lights glow in a cityscape at night.
Investing

What Are the Best REITs to Buy Now?

CT REIT (TSX:CRT.UN) remains one of my favourite REITs to consider picking up this year.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Max Your TFSA Impact: 4 Dividend Stocks to Buy and Hold Forever

Adding these TSX dividend stocks to your TFSA can maximize your portfolio's income potential and compound your returns over time.

Read more »

man touches brain to show a good idea
Dividend Stocks

This 6% Yield Has Survived Every Market Crash Since 1995

This top TSX stock boasts a yield of over 6% and a dividend track record that has weathered every market…

Read more »

Rocket lift off through the clouds
Tech Stocks

1 AI Stock Up 11% to Own in a TFSA for Long-Term Growth

Never mind chasing flashy AI start-ups with soaring valuations. Check out this profitable Canadian tech powerhouse that has stood the…

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe Mines: Buy, Sell, or Hold in July 2025?

Here's what to consider before trading Ivanhoe Mines stock this month. Watch out for July 30th!

Read more »

ETF stands for Exchange Traded Fund
Investing

Earn a 4.3% Yield From Berkshire Hathaway Stock With This Monthly Income ETF

This ETF uses options and leverage to generate income from Berkshire Hathaway

Read more »