Air Canada (TSX:AC) stock continues to soar. Today, shares of Air Canada stock are up 4% in early trading. Investors appear to be enamoured with the growth prospects of this airline coming out of the pandemic. Indeed, as a turnaround play, Air Canada stock has topped my list for quite some time.
The temptation to take profits in a company after an absolutely incredible ride can be significant. Accordingly, investors need to consider if their thesis on this stock has changed recently. If not, holding steady and being patient is the way to go.
Here’s why I think Air Canada stock is one that should be held right now rather than trimmed.
Lots of upside for Air Canada stock on the horizon
Expectations that a bailout could materialize in the near term is one of the key drivers behind Air Canada stock today.
Unifor’s Jerry Dias made comments a week ago that the initial $7 billion number that was floated around in bailout talks previously was a floor, rather than a ceiling. Additionally, more insight into the structure of a bailout package has piqued the interest of investors. Essentially, it appears this money will be paid out as a low-interest loan. The expected interest rate of 1%, and the 10-year payback period, which are anticipated to be part of the deal, are very favourable to Air Canada stock. Yes, bond yields are low. However, airlines have been forced to offer higher yields to satisfy investors in recent months amid concerns about the health of the airline sector.
Indeed, I think the market is getting ahead of the announcement on this one. Most of the value a bailout would provide Air Canada shareholders is likely already priced in. However, more balance sheet stability is always better than less. Investors are able to pick up shares of a great long-term hold at a reasonable price today.
Air Transat acquisition a big deal for shareholders
The other key catalyst I think investors will be laser-focused on is the company’s recently approved deal to acquire Air Transat.
As I’ve said previously, I think this deal is very bullish for Air Canada stock investors. More consolidation in an already narrow market provides further pricing power to the behemoths running the airline industry in Canada. Air Canada is likely to be able to improve margins over time as a result of this deal. Improved long-term profitability is a great thing for value investors considering this stock today.
Additionally, this deal cements the company’s growth trajectory in the discretionary travel segment. Air Transat was one of the more significant players in providing vacation packages to Canadians to popular destinations. Air Canada’s market share growth in this important sector is likely to be a big driver of future performance post-pandemic. I think this deal could be a real growth catalyst long term for Air Canada stock shareholders, particularly given the price Air Canada paid to acquire Air Transat.
Like this top turnaround play? You have to read more:
Before you consider Air Canada, you may want to hear this.
Motley Fool Canadian Chief Investment Advisor, Iain Butler, and his Stock Advisor Canada team just revealed what they believe are the 10 best stocks for investors to buy right now... and Air Canada wasn't one of them.
The online investing service they've run since 2013, Motley Fool Stock Advisor Canada, has beaten the stock market by over 3X. And right now, they think there are 10 stocks that are better buys.
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 Chris MacDonald has no position in any of the stocks mentioned.