Is WestJet Airlines Ltd. the Stock to Buy Today?

WestJet Airlines Ltd.’s (TSX:WJA) stock rose nearly 20% in 2014, and it could post a similar performance in 2015. Should you buy shares today?

The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

WestJet Airlines Ltd. (TSX:WJA) is one of the largest airlines in North America, and its stock was one of the market’s top performers in 2014, rising approximately 19.8% and far outperforming the TSX Composite Index’s return of approximately 7.4%. The stock has had a poor start to 2015, falling over 6.5%, but I think it will rebound and head much higher over the course of the year, so let’s take a look at three reasons you should consider initiating long-term positions today.

1. Record earnings to support a higher stock price

On February 3, WestJet released record fourth-quarter earnings, and its stock has responded by rising over 2% in the days since. Here’s a breakdown of 10 of the most notable statistics and updates from the report compared to the year-ago period:

  1. Adjusted net income increased 33.8% to $90.7 million.
  2. Adjusted earnings per share increased 34.6% to $0.70.
  3. Total revenue increased 7.3% to $994.4 million.
  4. Segment guests increased 5.9% to 4.83 million.
  5. Operating profit increased 37.3% to $139.61 million.
  6. The operating margin expanded 300 basis points to 14%.
  7. Available seat miles (ASMs) increased 7.3% to 6.38 billion.
  8. Revenue passenger miles (RPMs) increased 6.5% to 5.08 billion.
  9. Revenue per revenue passenger mile increased 0.7% to 19.57 cents.
  10. Westjet ended the quarter with $1.36 billion in cash and cash equivalents, an increase of 8.1% from the year ago period.

In fiscal 2014, WestJet’s adjusted earnings per share increased 21.2% to $2.46 and its revenue increased 8.6% to $3.98 billion, and after the aforementioned fourth-quarter performance, I think its safe to assume that it has momentum on its side heading into the first-quarter of fiscal 2015.

2. The stock trades at inexpensive current and forward valuations

At today’s levels, WestJet’s stock trades at just 12.7 times its trailing 12 months earnings per share of $2.46, only 11.8 times fiscal 2015’s estimated earnings per share of $2.63, and a mere 9.1 times fiscal 2016’s estimated earnings per share of $3.44, all of which are inexpensive compared to its five-year average price-to-earnings multiple of 13.8 and the industry average price-to-earnings multiple of 14.9.

I think WestJet’s stock could consistently command a fair multiple of about 13.5, which would place its shares upwards of $35.50 by the conclusion of fiscal 2015 and upwards of $46 by the conclusion of fiscal 2016, representing an upside of approximately 14% and 47.7%, respectively, from current levels.

3. A generous dividend that is on the rise

On the day of its fourth-quarter earnings release, WestJet also announced a 16.7% increase to its quarterly dividend to $0.14 per share, bringing its annual payment to $0.56 per share and giving its stock a healthy 1.8% yield at current levels. This marked the fifth consecutive year in which the company has raised its dividend, and I think it can continue this streak for the next several years because it generates ample free cash flow each quarter and year.

Should you invest in WestJet Airlines today?

WestJet Airlines was one of the market’s best performing stocks in 2014, and I think it will post a similar performance in 2015 because it has record earnings to support a higher stock price, trades at inexpensive current and forward valuations, and pays a generous 1.8% dividend, which it has increased in each of the last five years. With all this in mind, I think WestJet Airlines represents one of the best long-term investment opportunities in the market today, so Foolish investors should strongly consider initiating positions.

Should you invest $1,000 in Canadian Apartment Properties right now?

Before you buy stock in Canadian Apartment Properties, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Canadian Apartment Properties wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Dip Buyers Could Win Big in Today’s Market Dip

If you want to buy the dip, think long-term. Which is why this TSX stock is a top option.

Read more »