On Thursday, BMO Capital adjusted its outlook on Air Canada (AC:CN) (OTC: ACDVF) shares, reducing the price target to C$30.00 from the previous C$32.00. Despite this change, the firm reaffirmed its Outperform rating on the airline's stock.
The price target adjustment reflects a revised estimate for unit revenue growth, taking into account an increase in capacity, ongoing geopolitical challenges, and a subdued macroeconomic environment, including consumer sentiment.
BMO Capital noted that these factors do not alter the core investment thesis for Air Canada but signify a shift towards a more normalized passenger travel market following the pandemic-induced volatility.
BMO Capital anticipates Air Canada to embark on a period of network expansion, which is expected to drive growth in earnings and cash flow from operations (CFO). This expansion strategy is projected to lay the groundwork for substantial distributions to shareholders, likely commencing in 2025.
The firm's assessment indicates that while the immediate growth trajectory for Air Canada has been moderated, the long-term outlook remains positive with significant shareholder returns on the horizon. The Outperform rating suggests that BMO Capital continues to view Air Canada's stock as likely to outperform the broader market or its sector in the foreseeable future.
The airline industry has been navigating through a complex landscape marked by fluctuating demand and operational challenges. Air Canada's strategic initiatives, aimed at strengthening its network and enhancing financial performance, are being closely monitored by investors as the company prepares for the next phase of its growth.
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