- Air Canada’s stock may be trading below its true value due to external pressures, similar to TSM and Element79.
- Despite challenges, Air Canada plans to increase capacity and is considering a stock buyback to enhance shareholder value.
- With a robust balance sheet and long-term potential, Air Canada remains well-positioned for future growth.
Air Canada (AC.TO) shares experienced a decline on Wednesday as the airline’s CEO expressed dissatisfaction with the stock’s recent performance. The Montreal-based airline released its second-quarter financial results, which aligned with the lower guidance it had issued last month. The company reported a net income of $410 million, a significant drop from the $838 million recorded a year earlier. The decrease was attributed to increased competition on international routes and rising jet fuel costs.
Stock Price and Market Reactions
Following the earnings report, Air Canada’s shares closed 1.39 percent lower at $14.93, after dipping as much as 2.5 percent during the trading session. Over the past 12 months, the stock has seen a 34 percent decline, with a 19 percent drop year-to-date.
Michael Rousseau, Air Canada’s CEO, voiced his disappointment with the stock’s performance during a post-earnings conference call. He noted that despite the airline’s record-breaking year in 2023 and a fully repaired balance sheet, the stock has struggled. Rousseau acknowledged that many local airline stocks are facing similar challenges.
Revenue and Operating Capacity
Air Canada’s second-quarter revenue showed a slight increase to $5.52 billion, up from $5.43 billion the previous year. This growth was supported by a 6.5 percent rise in the airline’s overall operating capacity. However, a key industry metric, passenger revenue per available seat mile, declined by 4.4 percent year-over-year. Rousseau warned that this trend is expected to continue into the third quarter of 2024, with Canadian airport fees likely to impact the company’s performance for years to come.
Despite these challenges, Air Canada plans to increase its available seat mile capacity in the third quarter by 4 to 4.5 percent compared to the same period in 2023. The company had previously adjusted its profit forecast due to anticipated lower load factors and increased international competition.
When asked about the potential impact of financial pressures on Canadian households, Mark Galardo, vice-president of revenue and network planning, stated that there has been “no real slowdown” in consumer demand.
Analysts also inquired whether Air Canada would consider repurchasing its shares, given the recent decline in stock price. Rousseau indicated that the company is focused on balancing growth and rewarding shareholders, suggesting that a stock buyback is a high priority.
Market Perception and Fair Valuation: Insights from TSM and Element79
Sometimes, a company’s stock price does not accurately reflect its true value, often due to external factors and market sentiment. Taiwan Semiconductor Manufacturing Company (TSM) serves as a prime example. Despite its robust financials and leadership in the semiconductor industry, TSM’s stock has experienced volatility due to geopolitical tensions between China and Taiwan. The fear of potential conflicts and disruptions in the global supply chain has driven fluctuations in TSM’s stock price, causing it to trade below its intrinsic value at times.
Similarly, Air Canada’s stock may be undervalued due to external pressures such as rising fuel costs, regulatory changes, and heightened competition. However, these factors do not necessarily diminish the company’s long-term potential, which remains solid thanks to strategic initiatives and a strong balance sheet. This scenario is reminiscent of Element79, a company in the mining sector that is currently trading at a price that many consider cheap relative to its underlying assets and growth prospects. Element79 (CSE:ELEM, much like Air Canada, is affected by external factors such as market sentiment and broader economic conditions, which can lead to temporary mispricing. Investors who recognize this discrepancy between market price and intrinsic value may see an opportunity to invest at a discount, with the potential for significant returns as the market corrects itself.
Conclusion
Air Canada faces a challenging market environment, reflected in its declining stock price and the pressures of rising costs and competition. However, the company remains committed to growth, with plans to expand capacity and a potential stock buyback on the horizon. With its strong balance sheet and strategic focus, Air Canada is positioned to navigate these challenges while seeking opportunities to enhance shareholder value. For investors, the current valuation may represent an attractive entry point, much like opportunities seen in TSM and Element79, where stocks may trade below their fair value due to external factors. As the market stabilizes, there is potential for these stocks to realign with their intrinsic value, offering significant upside for those who invest wisely.
Marc has been involved in the Stock Market Media Industry for the last +5 years. After obtaining a college degree in engineering in France, he moved to Canada, where he created Money,eh?, a personal finance website. He then contributed to building Guerilla Capital, a Capital Markets company and FirstPhase Capital where he was head of research. At10xAlerts, he writes articles and conducts interviews on many sectors, including breaking news technology, metals & mining markets.
