Is AC Stock a Buy Now?

After sliding for four consecutive years, Air Canada (TSX:AC) stock finally seems on track to end 2024 in the green territory. AC stock has risen 19% year to date to currently trade at $22.24 per share with a market cap of $7.8 billion. Besides the broader market rally, the largest Canadian passenger airline company’s improving long-term growth prospects seem to be playing a key role in this recovery.

But is it the right time to buy AC stock? In this article, I’ll highlight Air Canada’s recent performance, financial health, and fundamental growth potential to help you decide whether it deserves a place in your portfolio.

Air Canada’s improving financials

Despite macroeconomic challenges and a tough consumer spending environment, Air Canada’s financials look stable. In the third quarter of 2024, the airline brought in $6.1 billion in revenue, which was 3.8% lower on a YoY (year-over-year) basis. Nevertheless, it generated $282 million in free cash flow during the quarter, reflecting a solid $147 million jump from the same period in 2023.

Last quarter, Air Canada’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) stood at $1.5 billion, which shows the airline’s ability to maintain healthy profit margins despite rising operating expenses. The adjusted EBITDA margin for the quarter came in at a strong 24.9%.

One of the biggest positives for Air Canada in 2024 has been its ability to navigate challenges like labour negotiations without significant disruptions as it concluded its pilot contract negotiations during the busy summer season. These positive factors could be responsible for driving AC stock higher of late.

Growth prospects remain strong

As the demand for its services remains strong, Air Canada is staying focused on long-term growth. In the third quarter alone, it flew nearly 13 million passengers. While its passenger revenues declined, the airline’s overall load factor, which mainly reflects how full its flights are, remained strong at 86.9%.

Interestingly, Air Canada recently announced a share-buyback program, which is expected to offset shareholder dilution from pandemic-era financing decisions. Meanwhile, Air Canada’s continued investments in its network and operational improvements could play a key role in sustaining financial growth. For example, the airline is continuing to make efforts to streamline schedules and improve on-time performance, which could help it boost its reputation among passengers.

Is AC stock a buy now?

For investors with a long-term approach, Air Canada’s recovery story looks promising. The company’s strong operational performance, combined with its focus on reducing debt and returning value to shareholders through its share buyback program, highlights management’s increasing confidence in its future.

However, we can’t ignore the risks that come with the airline industry. While the risk of higher fuel prices, competitive pressures, and economic uncertainties could create headwinds for AC stock in the short term, the airline company’s continued focus on efficiency could help it maintain profitability in the long run.

In addition to its improving growth outlook, we shouldn’t forget the fact that AC stock is still about 54% lower than its pre-pandemic year 2019’s closing level, making it even more appealing for value investors to buy now.