WestJet Airlines Ltd. or Air Canada: Which Should You Buy Today?

Does WestJet Airlines Ltd. (TSX:WJA) or Air Canada (TSX:AC) represent the better long-term investment opportunity today?

| More on:
The Motley Fool

WestJet Airlines Ltd. (TSX:WJA) and Air Canada (TSX:AC) are two of the largest airline companies in North America and both of their stocks represent great long-term investment opportunities today. However, the laws of diversification say we cannot own both, so let’s take a closer look at each company’s most recent quarterly release and other important statistics to determine which stock represents the better investment opportunity today.

WestJet Airlines Ltd.

WestJet Airlines announced record first-quarter earnings results before the market opened on May 5, but its stock has responded by falling over 5% in the trading sessions since. Here’s a breakdown of 10 of the most notable statistics from the report compared with the year-ago period:

  1. Net income increased 57.6% to $140.7 million
  2. Earnings per share increased 58% to $1.09
  3. Revenue increased 4% to $1.08 billion
  4. Total guests increased 2.2% to 4.91 million
  5. Revenue passenger miles increased 2.8% to 5.57 billion
  6. Total operating expenses decreased 2.7% to $886.34 million
  7. Operating cost per available seat mile decreased 7% to 13 cents
  8. Operating profit increased 49.8% to $197.16 million
  9. Operating margin expanded 560 basis points to 18.2%
  10. Return on invested capital improved 150 basis points to an all-time high of 15.8%

At today’s levels WestJet’s stock trades at just eight times fiscal 2015’s estimated earnings per share of $3.32 and only 7.6 times fiscal 2016’s estimated earnings per share of $3.48, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 13.8 and the industry average multiple of 12.8.

In addition, WestJet pays quarterly dividend of $0.14 per share, or $0.56 per share annually, giving its stock a 2.1% yield at current levels. The company has also increased its dividend five times in the last three years, showing that its management team is dedicated to maximizing the amount of capital it returns to shareholders.

Air Canada

Air Canada announced record first-quarter earnings results before the market opened on May 11, and its stock has responded by rising about 10% in the trading sessions since. Here’s a breakdown of the same 10 statistics we pulled from WestJet’s report compared with the year-ago period:

  1. Net income increased $254 million to $122 million
  2. Earnings per share increased $0.87 to $0.41
  3. Revenue increased 6% to $3.25 billion
  4. Total guests increased 8.4% to 9.49 million
  5. Revenue passenger miles increased 10.9% to 14.94 billion
  6. Total operating expenses decreased 2% to $3.05 billion
  7. Adjusted operating cost per available seat mile decreased 1.8% to 11.9 cents
  8. Operating profit increased $262 million to $200 million
  9. Operating margin expanded 820 basis points to 6.2%
  10. Return on invested capital improved 430 basis points to 15.2%

At current levels, Air Canada’s stock trades at just 4.7 times fiscal 2015’s estimated earnings per share of $2.66 and only 3.7 times fiscal 2016’s estimated earnings per share of $3.40, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 32.7 and the industry average multiple of 12.8.

Which stock represents the better buy today?

After comparing WestJet’s and Air Canada’s first-quarter earnings results and their forward valuations, and also factoring in WestJet’s dividend, I think WestJet Airlines represents the better long-term investment opportunity today.

Even though Air Canada’s first-quarter growth was much higher on a year-over-year basis and its stock trades at lower valuations, WestJet has grown at a much more consistent rate over the last five years, and its dividend will provide additional returns to investors going forward, while also providing protection to the downside in times of market volatility.

With all of the information provided above in mind, Foolish investors should strongly consider establishing long-term positions in WestJet Airlines today.

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.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »