Could Air Canada (TSX:AC) Stock Reach $50 in 2021?

While many reopening plays have recovered losses, Air Canada is trading way lower than its all-time highs.

| More on:
Airport and plane

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

TSX stocks at large fully recovered from the pandemic losses last year and have been making fresh highs for months. However, Canada’s biggest passenger airline Air Canada (TSX:AC) stock is trading 50% lower than last year’s high of $52. While many re-opening plays have recovered losses, Air Canada is trading way lower than its record highs. Can it breach $50 a share this year?

AC stock: Upbeat outlook

Expected higher consumer spending amid re-openings is expected to majorly lean towards travel and leisure. As a result, Air Canada, the passenger airline with the largest market share, will likely benefit from the pent-up demand. Even though the recovery will be gradual and may take time to boost the bottom line, its revenue growth should fuel its stock.

While its revenues and earnings kept deteriorating for the last few quarters, Air Canada’s relatively lower cash burn rate has been the silver line. Its average daily cash burn rate stood at $14 million for the last 12 months, much lower than its U.S. peers. Also, it has received a $5.9 billion bailout package from the Canadian government, which is equivalent to almost two years of liquidity. Notably, this capital will likely be enough till air travel demand normalizes post-pandemic.

Analysts expect Air Canada’s 2022 revenues at around $14.4 billion. Considering the historical average EBITDA margin of 15%, Air Canada’s next year’s EBITDA will likely be close to $2.15 billion, suggesting an EV-to-EBITDA multiple of 7.5. This does not look exorbitant and indicates handsome upside potential.

Challenges and risks

While passenger airlines could see pent-up demand post-pandemic, their road to recovery will certainly be challenging. The mutating variants of the coronavirus pose a severe challenge to reopenings and, ultimately, aviation companies. Restrictions for a longer period could result in more losses and more cash burn for companies like Air Canada, delaying their recovery.

In addition, rising jet fuel prices will likely increase operating costs for Air Canada as it sees to resume operations. Fuel costs account for approximately 30-40% of the airlines’ total operating expenses. Thus, crude oil prices should trend north, as economies re-open and significantly dent airline’s financials.

Another risk for Air Canada is the country’s blanket travel restrictions. Canadian authorities have been especially conservative and have put stringent curbs on international travel since last year. While many developed countries have opened travel, Canada is far behind, mainly because of its comparatively slower vaccinations.


Despite the challenges, Air Canada stands tall because of its strong balance sheet and leading market share. While $50 a share seems a tall target for now, it is not impossible at all. During October last year and March 2021, Air Canada stock more than doubled on vaccine launch and re-opening hopes. The next six months will also be crucial and could drive significant growth for it. Revenue recovery and potential lower cash burn could push AC stock beyond $50 as air travel normalizes.

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 Vineet Kulkarni has no position in any of the stocks mentioned.

More on Stocks for Beginners

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

Stocks for Beginners

Have $10,000? Top 2 Stocks You Should Invest it in

Passive-income stocks like BCE (TSX:BCE)(NYSE:BCE) could be good opportunities in 2022.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Blue-Chip Stocks to Buy Today and Never Let Go

Old and new investors alike will worry less about market volatility if blue-chip stocks are the backbones of their investment…

Read more »

edit Businessman using calculator next to laptop
Stocks for Beginners

Got $6,000? Here’s How You Can Power Your TFSA in August

Are you hoping to contribute to your TFSA? Power your portfolio with these three stocks!

Read more »

edit Person using calculator next to charts and graphs
Stocks for Beginners

TFSA Investors: 3 Stocks With Unbelievable Staying Power

Are you looking for stocks to add to your TFSA? Here are three stocks with unbelievable staying power!

Read more »

TFSA and coins
Stocks for Beginners

Got $6,000? 2 Cheap Stocks to Buy for Your TFSA Right Now

Here's two cheap stocks that could blow away growth estimates and set you up well in the long run.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

3 Top TSX Stocks That Saw Bumper Q2 Earnings Growth

Some stocks are seeing epic growth even as the market braces for a recession.

Read more »

Target. Stand out from the crowd
Stocks for Beginners

3 Stocks That Are Great Long-Term Picks

Are you looking for stocks that you can hold for the long run? Here are three great long-term picks!

Read more »