Air Canada (TSX:AC) stock has caused many shareholders to reach for the barf bags in recent years. The turbulence has been quite vicious, with shares swinging double-digit percentage points in both directions. Though it’s been a magnificent recovery year for shares of Canada’s top airline play, up almost 20% year to date, the latest slip seems to be yet another cause for concern for those seeking a swift rally on the back of a broader recovery in the air travel scene.
With shares of Air Canada now off around 11% from their 52-week highs of around $26 per share, I think investors should fasten their seatbelts and get ready for a rocky ride through the second half. Indeed, a recession could stop a travel recovery in its tracks. However, I think more than just a recession is priced into the $8.2 billion airline right here.
A strong quarter in the books leaves me optimistic about air travel’s continued recovery
For the first quarter, Air Canada enjoyed quite a bit of relief, with passenger revenues surging 53% year over year to $4.08 billion. As the company gets expenses and all the sort under control, I believe the company can pick up where it left off before the COVID pandemic sent it into the abyss. Indeed, Air Canada had a lot of wind behind its back before the pandemic hit. It’s hard to remember what it was like to be in shares of AC when things were going right, and management was firing on all cylinders.
Though headwinds have really hurt the stock, investors shouldn’t blame management. They’ve done a decent job of navigating through what I believe is one of the worst possible climates for the airlines. Indeed, the pandemic may not quite be over yet. Still, the company has found a way to prepare and adapt in unprecedented conditions.
A Canadian recession could be another headwind for Air Canada and the airlines
While the airlines tend to be vulnerable to recessions, one has to think the stock has already been punished with recession-related risks. After all, we’ve spent more than a year hearing about pundits’ views on the recession to come. Further, Air Canada may have what it takes to fly through yet another year of economic turmoil. Though the Bank of Canada may or may not be able to put in place a “soft landing” for the economy, I do not doubt Air Canada’s ability to land smoothly on the runway.
With shares on the descent again, value investors may wish to step in if the $20 level is tested again. The air travel recovery has been respectable, but it’s global air travel that may be next in line to enjoy tailwinds.
At the time of writing, AC stock goes for 8.96 times forward price to earnings and 0.44 times price to sales. That’s incredibly cheap for Canada’s top airline, even if we’re due for more macro turbulence before a slow and steady ascent. Provided you’re comfortable with choppy moves, Air Canada stands out as a name to keep watch on going into September 2023.
