Air Canada Stock: Buy, Sell, or Hold?

Despite short-term challenges, Air Canada stock could be a great Canadian stock to buy now and hold for the long term.

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Air Canada (TSX:AC) is on the path to a healthy recovery in 2023 after diving for three consecutive years. AC stock has risen 21.7% on a year-to-date basis to currently trade at $23.60 per share, taking its market cap to $8.5 billion.

Before we analyze whether you should buy, sell, or hold Air Canada stock right now, let’s take a closer look at its latest quarterly financial results announced last week.

Air Canada stock rallies after second-quarter results

In the quarter ended in June 2023, Air Canada’s financial performance showcased a remarkable recovery as the air travel demand continued to improve, reflecting the airline’s resilience and strategic adaptability. Stronger demand drove its total revenue up by 36.3% YoY (year over year) in the last quarter to $5.43 billion, exceeding Street analysts’ estimate of $5.15 billion.

Furthermore, the airline’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) stood at $1.22 billion, marking a substantial improvement from $154 million recorded in the second quarter of 2022. Similarly, its adjusted EBITDA margin also expanded significantly to 22.5% in the second quarter from just 8.4% in the first quarter.

Higher revenues and a 31.4% YoY decline in jet fuel prices helped Air Canada post adjusted quarterly earnings of $1.85 per share, a significant leap from its adjusted net loss of $ 1.18 per share in the same quarter of the previous year.

Overall, this recent turnaround in Air Canada’s financial performance could be attributed to the airline’s continued focus on effective cost management strategies and the resurgence in travel demand, which drove a 42% YoY jump in its quarterly passenger revenues. These positive factors boosted investors’ confidence and drove Air Canada stock up by 3.2% on the day of its earnings event.

Is AC stock a buy now?

Weak air travel demand has been one of the key negative factors that have affected Air Canada stock in the last few years. But the recent demand recovery looks promising and can continue benefiting global airline companies, including the Canadian flag carrier.

Clearly, Air Canada’s fundamentals have improved significantly in the first half of 2023, which justifies why its share prices have recovered by nearly 22%. This financial recovery also underscores the largest Canadian passenger airline company’s operational efficiency and its ability to capitalize on the rebounding travel market. Its latest results also reflect Air Canada’s robust business model and its potential for sustained growth in the post-pandemic era.

However, the possibility of a looming recession continues to haunt investors this year. Investors fear that a recession could badly affect the travel demand in the near future, which could be the main reason why AC stock is still down more than 51% from its pre-pandemic year 2019’s closing level of $48.51 per share. And the possibility of these recession concerns further affecting Air Canada’s stock price movement in the near term can’t be denied completely.

Nonetheless, if you’re planning to buy Air Canada stock now to hold for the long term (for at least the next 10 years), it certainly looks attractive at the current market price.

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

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