Did you know that Air Canada (TSX:AC) stock is still hovering at pandemic-era levels? Did you also know that the airliner is posting record revenues? We’ll get to that and more in this article as I explore the reasons that Air Canada is a transportation stock to buy today.
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Air Canada’s financials
I wanted to start off by reviewing Air Canada’s financial state and financial health today as compared to 2019. This can help us put things into perspective and drive home why I believe that Air Canada is the best transportation stock to buy today.
Back in 2019, things were humming along really nicely for Air Canada. The stock was hitting record highs, as was its revenue and profitability. In fact, revenue in 2019 came in at $19.1 billion and earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $3.6 billion. Finally, Air Canada had liquidity of $1.7 billion.
Since then, Air Canada has been through a pandemic that almost took it down. In 2024, the airliner reported revenue of $22.2 billion, adjusted EBITDA of $3.6 billion, and adjusted earnings per share (EPS) of $3.55. This compares to adjusted EPS of $3.37 back in 2019. Lastly, Air Canada has $9.5 billion of liquidity today.
This quick analysis of the numbers shows that Air Canada is actually in a better position than it was in 2019, when everybody loved the stock. But there’s more.
Air Canada: A new and improved business
The pandemic years were difficult to say the least, but they also drove change at Air Canada. Yes, costs are higher, but Air Canada is also more agile and operationally efficient than it was before. This can be seen in the way that Air Canada has responded to recent difficulties with the U.S.
While flights between Canada and the U.S. have seen booking declines in the low teens percentage range, overall booking trends remain stable. This is due to Air Canada’s quick reaction to reallocate cash to markets where the demand is greater. Destinations such as Europe, Asia, and the Middle East.
It is this focus on international travel and capacity adjustment that has diversified Air Canada’s network. Today, the airliner’s network diversification is a key strength versus that of its peers, and it positions Air Canada to thrive in many different scenarios.
Dirt-cheap valuation
Moving on to valuation, it’s clear to see that investors don’t have many positive expectations for Air Canada. In fact, the stock is trading at a mere 8 times this year’s expected earnings and 7 times 2026 expected earnings. Clearly, the focus is on the risks, of which there certainly are some, such as trade tensions and the economy.
But there are also many things that mitigate these risks. For example, the price of oil has fallen 21% in the last year alone. Given that jet fuel is Air Canada’s biggest expense, making up more than 20% of its total cost, this is a big positive.
The bottom line
Air Canada has managed things exceptionally well since the pandemic. Today, Air Canada’s stock price is reflecting the risks of this investment, but in my view, it ignores the positive. Therefore, I do not believe that it’s being valued accurately. This makes Air Canada one of the best transportation stocks to buy today.
