4 Reasons to Buy Air Canada (TSX:AC) Stock in September

The grand comeback of the Air Canada stock could be late in coming, although it should come after 2021. There are four reasons the airline stock must be on the buy lists of investors in September.

| More on:
Plane on runway, aircraft

Image source: Getty Images.

Investors’ patience with Air Canada (TSX:AC) must have run out after waiting seven quarters for a breakout. Indeed, the airline stock hasn’t taken off as most of its passenger aircraft fleet. However, there’s still hope for a grand comeback after 2021. There are four reasons to buy the stock this September before it happens.

The share price has risen to as high as $30 in mid-March 2021, only to sputter again. As of August 27, 2021, Air Canada has only a 9.9% gain to show at the current share price of $25.03. However, market analysts maintain a buy rating and predict a return potential of 21.38% in the next 12 months. The trailing one-year price return is already 51.7%.

1. Revenue-enhancing initiatives

Air Canada saw its operating revenues increase by 59% to $837 million in Q2 2021 versus Q2 2020. The airline’s negative EBITDA of $656 million was smaller by 21.2%. Moreover, its unrestricted liquidity as of June 30, 2021, reached almost $9.8 billion.

Notably, Air Canada’s average seat mile (ASM) capacity rose 78% year over year. The airline’s peak summer schedule has 50 total Canadian destinations already. Management said it developed the schedule to advance the country’s economic recovery. It was also a way to support the tourism and hospitality industry.

2. Declining cash burn

The signs are clear that management’s continuing cost control measures are effective. Air Canada earlier predicted that it would burn between $13 million and $15 million daily, on average, during the second quarter. However, the actual results showed only an $8 million average per day.

For the third quarter, management expects to see correlated financial improvements. The company sets a cash burn guidance of only $3 billion to $5 billion per day. Air Canada President and CEO Michael Rousseau, said, “We are excited and ready to welcome back our valued customers in great numbers and to introduce them to the many improvements we have made to enhance their journey.”

3. Adequate financing and liquidity

Rousseau expressed confidence that Air Canada will rebuild stronger and rise higher than ever before. On April 12, 2021, the company paid off US$400 million worth of Senior Unsecured Notes. After the second quarter, the company launched the syndication of a new secured loan B with a 2028 maturity.

It also completed the syndication of a new senior secured revolving facility that will mature in 2025. Air Canada plans to use the estimated US$5.35 billion proceeds from refinancing transactions to fund working capital and other general corporate purposes.

4. Expanding cargo network

On July 5, 2021, Air Canada Cargo flew its 10,000th cargo-only flight operated by a Boeing 789. Because of restricted passenger flights, the airline shifted attention to on-demand, cargo-only flights in March 2020.

Matthieu Casey, Senior Director, Cargo Global Sales and Revenue Optimization, said about the milestone, “Thinking back to when we began these flights and the sudden grounding of so many aircraft, we wouldn’t have guessed that we’d reach these kinds of numbers.”

In Q2 2021, Air Canada’s cargo business revenue increased 33.1% year over year, a new record. By January 2022, the network should expand as there’ll be additional flights due to more freighters entering the service.

Breakout will come

According to Michael Rousseau, Air Canada is turning the corner in 2021. While it doesn’t reflect on the growth stock’s performance yet, there’s growing optimism that the breakout will come.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

A person builds a rock tower on a beach.
Dividend Stocks

CPP Pension: Boost Your Payouts by $5,232 per Year

You can raise your after-tax CPP by making RRSP contributions. Alimentation Couche-Tard (TSX:ATD) is a good RRSP stock.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

1 Stock That’s Just as Hot as Tesla Stock  (Without All the Hype)

Sure, Tesla stock (NASDAQ:TSLA) has the headlines, but this other stock has far more growth, with even more on the…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

Here are three no-brainer stocks that are suitable for anyone getting started on their investing journey.

Read more »

Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

A plant grows from coins.

3 Growth Stocks to Buy With $3,000 for the Next 3 Years

These growth stocks have the potential to deliver above-average returns and compound investors’ wealth.

Read more »

Young woman sat at laptop by a window

Here’s Why I Think Restaurant Brands Is 1 of the Best Bets on the TSX Today 

Here's why Restaurant Brands (TSX:QSR) could be one of the best stocks to buy for long-term upside in this current…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

This 5% Dividend Stock Pays Cash Every Month

This monthly dividend stock offers cash every month, but also returns that continue to climb higher from being in a…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

3 Top Dividend Stocks That Keep Raising Their Payouts

These three TSX stocks are ideal buy as they consistently raise their payouts, depicting their healthy financials.

Read more »