Should You Buy Air Canada Stock Before Its Q2 Results?

Air Canada stock remains a high-risk bet for investors as the COVID-19 pandemic continues to impact global recovery.

| More on:

We have just entered the Q3 of 2021, which means earnings season has begun and stocks will remain volatile based on their performance in Q2 as well as any guidance the management provides for Q3 and beyond. Keeping these factors in mind, let’s see if you need to buy Air Canada (TSX:AC) stock before its earnings release on July 23, 2021.

What to expect from Air Canada in Q2?

Bay Street expects Air Canada stock to report sales of $845 million in the second quarter of 2021, an increase of 93.7% year over year, compared to sales of $436.36 million in the year-ago period. This will allow Canada’s leading airline to narrow its loss per share to $2.77 in Q2 compared to a loss of $4.01 in the prior year’s quarter.

All eyes will also be on the management guidance for Q3 and 2021. Bay Street has forecast Q3 sales to rise 186% to $2.16 billion, while sales in 2021 might grow by 6.1% to $6.19 billion. Air Canada is also expected to narrow its loss from $1.96 per share in 2020 to $8.93 per share in 2021.

Will AC stock make a comeback?

The COVID-19 continues to weigh heavily on the capital-intensive airline sector that was completely decimated last year. The pandemic is far from over and lockdown restrictions in major Canadian provinces such as Ontario are yet to be completely relaxed.

While Canada’s vaccination rollout has gained a significant pace in the last three months, several major economies are running behind schedule.

These factors will delay the recovery of the global economy, which means international travel will remain subdued in the near term despite pent-up demand. Even if restrictions are completely lifted, Canada and many other countries are likely to only allow tourists who are completely vaccinated to enter the country.

Further, over the long-term, the high margin business class vertical of Air Canada and its peers will be impacted due to the shift toward the work-from-home trend. While analysts expect Air Canada sales to rise by 132% to $14.35 billion in 2022, it will still be below record sales of $19.1 billion in 2019. In fact, Air Canada sales stood at $18 billion in 2018 and $16.3 billion in 2017.

It will likely take at least two more years for air traffic to reach pre-pandemic levels.

What’s next for investors?

In Q1, Air Canada increased its available liquidity via a series of debt and equity financing agreements with the Government of Canada. It can access up to $5.37 billion in debt financing through repayable loans as well as equity investments for gross proceeds of $500 million.

At the time of its Q1 earnings call, Air Canada’s unrestricted liquidity under its credit facilities with the government stood at close to $4 billion.

In Q1 of 2021, the company’s net loss stood at $1.3 billion, which means Air Canada has some leeway to turn profitable before raising additional capital. AC stock is trading at a discount of 12% to consensus price target estimates, making it a high-risk bet given the uncertain macro environment.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Coronavirus

A airplane sits on a runway.
Coronavirus

3 Fresh Stocks I’m Likely Buying in 2025

I am likely buying Air Canada (TSX:AC) stock in 2025.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Coronavirus

Canadian RRSP Stocks to Buy Now for Retirement

Alimentation Couche-Tard Inc (TSX:ATD) is a quality retirement stock.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Coronavirus

Retirees: What Rising Inflation Means for Your CPP Payments

If you aren't getting enough CPP, you can consider investing in stocks and ETFs. Canadian National Railway (TSX:CNR) is one…

Read more »

Coronavirus

Air Canada Stock Is Starting to Get Ridiculously Oversold

Air Canada (TSX:AC) has been beaten down to absurd lows.

Read more »

Coronavirus

Should You Buy Air Canada Stock While it’s Below $18?

Air Canada (TSX:AC) stock is below $18. Should you invest?

Read more »

Illustration of data, cloud computing and microchips
Stocks for Beginners

3 Canadian Stocks That Could Still Double in 2024

These three Canadians stocks have been huge winners already in 2024, but still have room to double again in the…

Read more »

Aircraft Mechanic checking jet engine of the airplane
Coronavirus

Can Air Canada Stock Recover in 2024?

Air Canada (TSX:AC) stock remains close to its COVID-19 era lows, even though its business has recovered.

Read more »

A airplane sits on a runway.
Coronavirus

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »