The Motley Fool

Bill Gates: Will Air Canada (TSX:AC) Stock Rally After its Q4 Earnings?

Image source: Getty Images

The Canadian flag carrier Air Canada (TSX:AC) will announce its Q4 2020 results on February 12 before the market opens. The airline continuously faced trouble last year and continued to lose money. Bay Street analysts expect the airline to report of $2.72 loss per share in the fourth quarter. This expectation is much better as compared to its $4.30 loss per share in the previous quarter. However, it’s still drastically worse than its positive earnings of 17 cents in the same quarter of the previous year.

Before we discuss what to expect from Air Canada’s latest earnings event, let’s take a quick look at its recent stock price movement.

Air Canada stock price movement

Air Canada stock began the year 2021 on a negative note as it tanked by 12% in the first month of the year — underperforming the broader market. By comparison, the S&P/TSX Composite Index remained nearly unchanged in January and settled with a minor 0.6% loss for the month.

The shares of the largest Canadian airline recovered sharply early in February and rose by 4.6% in the first week. Investors’ anticipation to hear a positive 2021 outlook during its Q4 earnings event could be the reason for this recovery. But the stock turned negative again earlier this week when the airline added 17 more international routes to the United States and other countries in its suspended service list. As a result, Air Canada stock has lost 3.6% in this week so far.

On Thursday — a day before its latest earnings event — the stock was trading on a mixed note as investors remain cautious ahead of expected high volatility tomorrow.

Analysts’ estimates for its Q4 2020 results

Analysts expect Air Canada’s Q4 revenue to fall by 80% YoY (year-over-year) to $885 million. It would be slightly higher compared to its $757 sales figure in the previous quarter. It would translate into $5.9 billion total revenue for the full-year 2020 — down 69% from 2019. According to consensus estimates, its operating expenses are expected to rise sequentially to about $1.7 billion from $1.5 billion in the previous quarter. But these expenses would still be 60% lower than its expenses a year ago due to Air Canada’s continuous cost-cutting efforts.

With about $929 million expected adjusted net losses in Q4 2020, the airline’s total net loss for the year could go as high as $3.9 billion.

Bill Gates: will its stock rally after the event?

If you’ve invested your money in Air Canada stock, you should definitely keep a close eye on its 2020 earnings event. The most important thing to watch during the event would be its announcements related to its recovery plan and 2021 outlook. I prefer to keep my expectations low as continued air travel restrictions would make it extremely difficult for even the airline’s management to give any clear outlook for the current year.

A few months ago, Microsoft’s founder Bill Gates expressed his opinion about a significant change in the business travel demand. The billionaire believes that over 50% of business travel would disappear in the post-COVID world. If Gate’s prediction turns out to be true, Air Canada and the airline industry could be in serious trouble. This is because business travel is one of the largest and most profitable segments in the airline industry. Such a huge decline in business travel demand could make Air Canada and its investors’ life very difficult in the coming years.

Analysts’ expectations from Air Canada’s Q4 earnings are already very low, as we just discussed. That’s why its stock might stage a short-term rally if the airline beats these expectations even by a narrow margin or if its management gives a slightly positive 2021 outlook.

Final thoughts

Even if its Q4 earnings event triggers a short-term rally in Air Canada stock, these gains might not sustain for long, I believe as the years ahead are likely to be very challenging for the airline industry. So, I would prefer to invest my money in other high-growth stocks to gains from the ongoing market rally instead of waiting for a big recovery in Air Canada stock.


Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Microsoft. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.