Air Canada (TSX:AC), the largest full-service airline in Canada, announced fourth-quarter earnings on the morning of February 11 and its stock has responded by falling over 8%. Let’s break down the quarterly results and the company’s outlook on fiscal 2015 to determine if we should consider using this weakness as a long-term buying opportunity, or a major warning sign.
The quarterly results are in
Here’s a summary of Air Canada’s fourth-quarter earnings compared to its results in the same period a year ago.
| Metric | Reported | Year Ago |
| Earnings Per Share | $0.23 | $0.01 |
| Revenue | $3.10 billion | $2.89 billion |
Source: Air Canada
Air Canada’s adjusted earnings per share increased 2,200% and its revenue increased 7.3% compared to the fourth quarter of fiscal 2013. The company’s immense earnings per share growth can be attributed to adjusted net income increasing 2,133.3% to $67 million, while its strong revenue growth can be attributed to the total number of revenue passengers carried increasing 8.1% to 9.19 million for the quarter.
Here’s a breakdown of 10 other notable statistics and ratios from the report compared to the year-ago period:
- Seats dispatched increased 6.2% to 11.95 million.
- Available seat miles increased 8.5% to 17.4 billion.
- Revenue passenger miles increased 9.4% to 14.09 billion.
- Passenger revenue per available seat mile decreased 0.6% to 15.6 cents.
- Adjusted cost per available seat mile (CASM) remained unchanged at 12.1 cents.
- Passenger load factor improved 70 basis points to 81%.
- Aircraft in operating fleet increased 3.4% to 364.
- Adjusted earnings before interest, taxes, depreciation, amortization, and aircraft rent increased 15.2% to $319 million.
- Economic fuel costs per litre decreased 8.7% to 80.7 cents.
- Return on invested capital improved 160 basis points to 12.1%.
Air Canada provided its outlook on fiscal 2015, calling for the following performance compared to fiscal 2014.
- Available seat miles to increase 9%-10%
- Seats dispatched to increase 2.5%-3.5%
- Adjusted CASM to decrease 0.75%-1.75%
- Jet fuel price of approximately $0.67 per litre
- Canadian GDP growth of 1.75%-2.25%
Should you buy shares of Air Canada today?
Air Canada is Canada’s largest full-service airline, and increased traffic led it to a very strong fourth-quarter performance, but its stock has responded by falling over 8%.
I think the large post-earnings drop in Air Canada’s stock represents an intriguing long-term buying opportunity, because it now trades at very low valuations, including only 7 times its adjusted earnings per share of $1.81 for fiscal 2014 and a mere 6.7 times analysts’ estimated earnings per share of $1.89 for fiscal 2015, both of which are extremely inexpensive compared to its five-year average price-to-earnings multiple of 32.7.
With all of the information above in mind, I think Air Canada represents one of the best long-term investment opportunities in the market, so Foolish investors should take a closer look and strongly consider scaling into positions today.
