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Air Canada (TSX:AC) Stock: 2 Weeks Until Judgment Day

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Exactly two weeks from tomorrow, Air Canada (TSX:AC) will be releasing a quarterly report that could change everything. The quarterly and full year earnings release will reveal the magnitude of the company’s losses for Q4 and fiscal 2020, as well as projections for 2021. All of this information is of vital importance to investors. And it could determine whether AC stock has anywhere to go in the first quarter of this year.

Background

AC was a major casualty of the COVID-19 market crash. In March, most stocks tanked as the magnitude of pandemic became apparent. But AC fell further than most stocks, declining as much as 74%.

In November, AC stock began an epic rally that saw it rise as much as 84% bottom to top. Since then, it has given up much of its gains.

Depending on what the company reveals on February 12, AC could either resume its climb or go back to where it was in March and April. So, let’s look at what information the company will be revealing.

February 12: judgment day

On February 12, Air Canada will be releasing its fourth quarter and full year report, which will tell us:

  • Standard financial info like revenue, net income, cash flows, and assets/liabilities
  • Operational data like passenger levels and number of routes in service
  • Forecasts for the first quarter and full year 2021

It’s the last item on that list that’s perhaps the most important. Management earnings forecasts tend to influence analyst estimates, which in turn influence stock prices. If Air Canada forecasts another multi-billion dollar losing year in 2021, then AC’s stock will likely tank. AC’s November rally was kicked off by the vaccine announcement.

If it turns out that the vaccine rollout isn’t going to improve things for the company anytime soon, then its stock could start sliding again — potentially all the way down to March 2020 levels.

What management is expecting

For the fourth quarter, Air Canada management has forecast:

  • A 75% reduction in overall capacity
  • 100 cargo flights per day–to make up for the loss of passenger flights
  • $1.1 billion to $1.3 billion in cash burn
  • An end to CEWS payments the company had been receiving

None of these numbers are good in themselves. However, a few of them are better than what we saw in mid-2020. For example, the 75% reduction in capacity is better than most of last year, which saw flights down 88%-90%. It will also be interesting to see how much revenue AC can generate with its additional cargo flights. Most likely, it won’t make up for the loss of passenger flights, but it could fill the gap somewhat.

Foolish takeaway

In 2020, Air Canada was one of the TSX‘s biggest losers. Down 74% top to bottom and about 55% for the year, the stock really disappointed. Two weeks from tomorrow, we’ll get a solid indicator as to whether that will continue in 2021. When earnings come out, we’ll get to see whether Air Canada’s business is improving or not. So far, there have been both good signs and bad signs. Personally, I’m not expecting much.

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 Andrew Button has no position in any of the stocks mentioned.

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