Latest Developments:
Air Canada (AC:CA) reported 2Q24 revenues of C$5.52 billion, reflecting a 2% YoY growth. However, margins deteriorated due to rising fuel costs, a C$25 million hedging loss, and wage-related expenses. Operating income declined by 49%, and net income fell by 51%. Despite these challenges, the airline plans to expand its fleet by 90 aircraft by 2029, potentially boosting revenue by 25%. Investors should expect modest growth and continued margin pressures in the short term.

Investment Case:
While facing margin pressures from higher labor and maintenance costs and a weak Canadian dollar, Air Canada is still generating sustainable free cash flow. The airline’s fleet expansion and revenue growth prospects position it for recovery over the long term. My valuation analysis suggests a potential upside of 179%, offering a compelling investment opportunity despite short-term headwinds.

Company's Valuation:
The DCF model values Air Canada at C$47.79 per share, reflecting a potential upside of 179%. The company’s strong cash flow, fleet expansion, and capacity growth are key valuation drivers. However, debt obligations between 2024 and 2028 pose risks to the balance sheet and liquidity.

Disclaimer: The above is an excerpt on a report written by our close associate, Selendis Research. Check out the full report here on Seeking Alpha. All information provided is intended solely for general informational purposes. Seven Insights does not take into account individual financial goals or situations and does not provide personalized investment advice. Seven Insights is not a licensed securities dealer, broker, U.S. investment adviser, or investment bank.