Air Canada (TSX:AC) was literally, and proverbially, a high-flying stock for a long time until the pandemic came along to ground all flights. Plenty of airlines worldwide are in much better positions in the post-pandemic era. However, Air Canada still seems to be trying to find a way back to and maintain the higher altitudes.
More recently, the ongoing trade tensions since Donald Trump took the Oval Office have investors spooked enough to harm investor sentiment across the board. Being seen as a riskier investment since before that, Air Canada stock is not getting a lot of love from Canadian investors in an already volatile market. As of this writing, AC stock trades for $15.49, down 40.83% from its 52-week high.
A major player
Regardless of the turbulence Air Canada faces, it is one of the two major airline operators in Canada. There are a few smaller airlines, but they operate regionally. Air Canada and WestJet effectively enjoy a duopoly, letting the two airline giants enjoy significant profits being shared between them.
In the trailing 12-month period, Air Canada enjoyed a 7% net margin. Rising expenses resulted in a slight negative impact on its profitability last quarter, but its long-term trajectory remained good.
Recent earnings
In its last fiscal quarter this year, Air Canada reported a 4% year-over-year increase in revenue. Its free cash flow decreased from $669 million to $495 million. Its adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) were up by $175 million, but the airline reported a net loss of $644 million.
Despite strong revenues, the numbers weren’t the best. The company is running around the fringes of breakeven this year and expects to do that in 2026 as well. The company expects to hit free cash flow in three years.
Air Canada already has a lot of debt from the pandemic, but it has more expenses to deal with. The company plans to spend around $9 billion between this year and next year on airplanes and other assets. While the expenses might add to its woes in the short term, the long-term value of the assets will likely pay off well for the beleaguered airline.
Foolish takeaway
The airline industry is still recovering, but the rest seems to be doing much better than Air Canada. The flag-carrying airline operates in a competitive industry, and the sector inherently has less long-term growth potential. However, air travel is expected to grow for years. During the pandemic, the airline took on significant debt to stay afloat, which might continue weighing it down.
However, most of the analysts covering Air Canada give it a buy rating, while a few give it a hold rating. The average analyst target price for the stock is $27.46, and as of this writing, it trades for roughly half at $15.49 per share.
If a recovery is closer than many think, the upward tick will be significant in the short term. However, a continued downturn in share prices does not seem impossible. Air Canada is too cheap to ignore, but I wouldn’t put any money into its shares that I can’t afford to lose.
