Air Canada (TSX:AC) Stock Is Ready to Fly High Again

Air Canada (TSX:AC) stock might be setting the stage for a sharp recovery in the coming months. Here’s why.

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Air Canada (TSX:AC) stock is currently trading on a mixed note in June after posting solid 10.5% gains in May. While the company has already finalized debt and equity financing agreements with the government in April, bears believe that its financial recovery might not pick up pace in the near term. Nonetheless, there are several other factors that, I believe, could soon initiate a recovery in its share prices.

Let’s take a closer look at some of the key factors that could help Air Canada stock rally in the coming months.

Air Canada stock: latest updates

Last week, the largest Canadian airline inaugurated a new international route by starting its first non-stop service between Montreal and Cairo, Egypt. Most of Air Canada’s profitable routes — especially international flight routes — have been badly affected by the global pandemic since the start of 2020. That’s why the airline might need to actively adjust its international flight routes in 2021 to be on the path of financial recovery. And adding the Montreal-Cairo route reflects its management’s willingness to do so.

Commenting on this new service, Air Canada’s senior vice president Mark Galardo highlighted that “We are strategically rebuilding our international network by adding new routes that support leisure and visiting friends and family travel.”

Other positive factors

While Air Canada has undoubtedly faced many challenges since the first quarter of 2020, things have started looking much better for the airline lately. Travel demand — domestic as well as international — has shown a healthy recovery in the recent weeks.

The recent demand surge is one of the key reasons why some airlines in the United States now believe that they might not have to cut more jobs this fall.

As more and more people are getting vaccinated across North America, the travel demand is expected to continue recovering. This is one key factor that could play a big role in helping Air Canada stock recover in the coming months, in my opinion.

Who should buy its stock right now?

Before the pandemic phase, Air Canada was in good financial shape as its operating revenues reached a new record of $19.13 billion in 2019. The airline also reported a $3.63 billion adjusted EBITDA with a solid margin of 19% for the year. But the company’s EBITDA entered the negative territory in 2020 due to the pandemic-related shutdowns and travel restrictions, and it continued to burn cash in the first quarter this year.

Nonetheless, Bay Street analysts expect Air Canada’s revenue to rise by about 60% year over year in Q2. Its sales recovery is likely to accelerate further in the second half of the year. Moreover, with the help of a renewed surge in the travel demand, recovery in its financials could pick pace in the coming quarters.

This financial recovery could help the airline regain investors’ confidence. That’s why I consider its stock worth buying for investors with a moderate risk appetite near its current market price of $27.40 per share at writing.

However, conservative investors with low-risk appetites could invest in some other undervalued high-growth stocks instead to get much better returns on their investment in the long term.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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