It won’t be too much longer until investors find out how much money Air Canada (TSX:AC) lost in 2020.
On February 12, AC will be releasing its earnings for the fourth quarter and full year 2020.
The earnings release will be closely watched, because it will tell investors whether the company is beginning to walk off its COVID-19 damage or not. What we know so far is that Air Canada lost money in the first three quarters of 2020–totaling $3.5 billion. In the fourth quarter release, we’ll get to see the magnitude of the loss for the full year.
There’s a lot riding on this. Since bottoming at $12 in the COVID-19 market crash, Air Canada has made some impressive gains. But the company’s fundamentals haven’t improved significantly. If the fourth quarter is as bad as the first, second and third, then AC stock could be in for another dip.
In this article, I’ll take a look at what Wall Street is expecting on February 12, and comparing it to Air Canada’s own statements.
What Wall Street is expecting
So far, it seems like Wall Street analysts are surprisingly bullish on AC stock. According to Wall Street Journal data:
- 12 analysts rate AC a buy
- 4 rate it a hold
- 1 rates it a sell
That’s pretty bullish, overall. The consensus stock price target from these analysts is $28–an improvement from today’s prices but not high enough to get the stock back to pre-COVID highs.
As for earnings: analysts are expecting $-2.8 per share in Q4, followed by $-1.8 per share in Q1 2021.
What the company is expecting
So far, we’ve seen that analysts expect AC’s stock to rise and think that the company’s loss will shrink in Q1 of this year. These forecasts are fairly optimistic. Unfortunately, the company itself seems to see things differently.
For the fourth quarter, AC’s management has forecast:
- $1.1 billion to $1.3 billion in cash burn.
- A 75% year-over-year reduction in capacity.
- No more CEWS money.
- $5 million per day in debt servicing costs.
Taken as a whole, these signs don’t indicate that good news is coming. With that said, it is possible that Q4 could be better than expected. AC beat expectations in Q3, losing only $685 million when losses in excess of $1 billion were expected. Perhaps, through a combination of cost cutting and more cargo routes, AC will beat again in Q4. It will almost certainly lose money, but if the losses are less than expected, then investors will take it as a positive.
Foolish bottom line
Management has already forecast that it would take three full years just to get back to 2019 revenue levels, and so far what’s actually happening is in accord with that prediction. The company continues to lose money quarter after quarter, and capacity remains down a full 75%. Because airlines have enormous fixed costs, they can’t profit on severely depressed revenue. I wish AC all the best but I’m still avoiding this stock.
