On Tuesday, BMO Capital Markets adjusted its outlook on shares of Air Canada (EXCHANGE:AC), revising the price target downward to C$28 from the previous C$30, while retaining an Outperform rating on the stock.
The revision comes in response to the pre-announced second-quarter EBITDA and the updated full-year 2024 guidance, which fell short of consensus estimates by approximately 12% and 13%, respectively. This shortfall was attributed to a slower-than-expected yield environment.
Air Canada has experienced similar challenges to its global counterparts, facing pressures in the Atlantic routes, which are integral to the airline's profitability. Despite these headwinds, Air Canada is anticipated to achieve the third-highest EBITDA in its history in the fiscal year 2024.
BMO Capital's analyst highlighted the potential for significant earnings and free cash flow (FCF) growth supported by the airline's planned fleet expansion in the upcoming years.
The new price target of C$28 is derived from a revised forward EBITDA multiple, which has been increased to 3.75x from the previous 3.50x. This adjustment reflects a more normalized valuation approach based on the airline's financial outlook. Even with the revised stock price target, BMO Capital's stance remains positive on Air Canada's performance prospects.
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