In 2023, the Canadian stock market has performed relatively well, with bouts of volatility leading to a stock chart that looks a lot like a roller coaster. For now, the TSX is up on the year, which is notable, given how resource and financials heavy the Canadian index is.
That said, other areas of the Canadian market may be more in focus for growth investors, with better near-term prospects, given the volatility seen in the financials and energy/commodities space. Airlines such as Air Canada (TSX:AC) provide investors with exposure to a sector still benefiting from secular tailwinds (spending surge following the pandemic) as well as a relative monopoly on the Canadian skies.
Let’s dive into whether Air Canada is worth buying in November or if investors should look elsewhere for value.
Air Canada raises profit forecasts
Despite increased labour costs and other pressures, Air Canada beat third-quarter profit estimates on strong international travel demand. The company plans to shift capacity to Asia Pacific, focusing on Japan and Korea, and expects its 2023 core profit to be at the upper end of its previous forecast range. In the third quarter (Q3) of 2023, its operating revenue rose 19.2% to $6.34 billion, beating analysts’ expectations.
What to make of Air Canada’s Q3 earnings report?
Air Canada attributed its strong performance in the third quarter to the expansion of its international network, growing scale in hubs and strategic partnerships. Despite a 10% increase in capacity, the airline managed to control operating costs and posted a 19% increase in operating income to $6.34 billion.
During the busy summer season, Air Canada carried 12.6 million passengers. Adjusted underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to $1.45 billion with a margin of 28.8%. Adjusted earnings per share rose to $3.41 from $1.07. The airline expects a 20% increase in available miles for the full year and maintains its adjusted EBITDA of $3.75 billion to $4 billion.
Can Air Canada stock make a move higher?
Air Canada’s share price has left much to be desired for investors, with the stock currently down around 10% on a year-to-date basis. It’s also worth noting that AC stock is still down more than 60% from its pre-pandemic levels, signalling just how much upside could be on the table if investors decide that things will return to normal.
Despite not currently being profitable, Air Canada’s operational metrics and its relative valuation to other U.S. peers make this airline one which may garner attention, particularly if the economists are correct and we’re not headed for a recession. We’ll have to see how the macro picture shapes up, but for now, this is a stock I think investors can be cautiously bullish on right now.
