Earnings Alert! Is Air Canada Stock a Buy After its Q4 Results?

Here’s why I find Air Canada stock attractive to buy, despite its fourth-quarter earnings miss.

| More on:

Air Canada (TSX:AC) released its fourth-quarter and full-year 2023 financial results before the market opening bell on February 16. At first, these results may look like a mixed bag. Despite surpassing its annual financial targets and highlighting strong demand for air travel, the Canadian flag carrier’s adjusted net loss of $44 million in the fourth quarter was worse than Bay Street analysts’ expectations of around $17.6 million loss.

As of February 15, AC stock was trading at $19.26 per share with a market cap of $6.9 billion. This earnings miss could pressure or restrict AC stock’s upward movement in the short term.

But what do Air Canada’s latest results tell us about its long-term growth? Let’s find out by looking at some key highlights from its fourth-quarter earnings report.

Strong annual performance in 2023

Air Canada achieved a record full-year total revenue of $21.8 billion in 2023, reflecting a significant jump of 31.9% from 2022, driven by robust demand for air travel. This surge in revenue highlights the airline’s recovery trajectory and the effectiveness of its operational strategies.

The company’s operating income for the year stood impressively at $2.2 billion, marking a $2.5 billion improvement from the previous year. Similarly, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of nearly $4 billion for the year more doubled on a YoY (year-over-year) basis. This adjusted annual EBITDA figure was also at the high end of Air Canada’s guidance range, showing operational efficiency and resilience.

The airline firm also posted a solid increase in its 2023 cash flows from operating activities to $4.3 billion and a free cash flow of nearly $2.8 billion. At the end of 2023, its net debt to adjusted EBITDA ratio improved dramatically to 1.1, down from 5.1 a year ago — showcasing a stronger fundamental with reduced debt levels.

But wider-than-expected quarterly loss

In the fourth quarter, Air Canada’s revenue rose 10.6% YoY to $5.2 billion, which also was close to its guidance. However, this was significantly lower than its revenue growth rate of 19.2% YoY in the previous quarter.

The largest Canadian passenger airline’s adjusted net quarterly loss of $44 million also missed analysts’ expectations, overshadowing its quarterly results. This loss could mainly be attributed to increased operational expenses and inflationary pressures, highlighting the challenges Air Canada continues to face in the post-pandemic recovery phase.

Is Air Canada stock a buy now?

Despite the fourth-quarter setbacks largely due to the ongoing macroeconomic conditions, Air Canada’s 2024 outlook remains optimistic. The airline plans to increase its ASM (available seat miles) capacity by about 10% YoY in the first quarter of 2024, indicating its continued focus on growth and market expansion.

Moreover, the company expects its full-year 2024 ASM capacity to be about 6 to 8% higher than in 2023. With this, it projects its adjusted EBITDA for 2024 to be between the range of $3.7 billion and $4.2 billion. These targets clearly reflect Air Canada’s continued efforts to navigate a tough economic period. That’s why, despite temporary challenges amid inflationary pressures, any short-term declines in Air Canada stock after its fourth-quarter results could be an opportunity for investors to buy it at a bargain for the long run.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

More on Stocks for Beginners

construction workers talk on the job site
Energy Stocks

Best Stock to Buy Right Now: Baytex vs Suncor?

Suncor and Baytex stocks both look like solid companies offering growth and dividends. But which is the better buy?

Read more »

profit rises over time
Top TSX Stocks

3 Reasons to Buy Enbridge Like There’s No Tomorrow

Have you considered buying Enbridge (TSX:ENB)? Here are 3 reasons to buy Enbridge today for lasting growth and income.

Read more »

An investor uses a tablet
Stocks for Beginners

If I Could Only Buy 2 Stocks in the Last Half of 2024, I’d Pick These

I’m looking to buy two stocks over the next month. Here’s a look at my picks and why you should…

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »

grow money, wealth build
Dividend Stocks

3 Top High-Yield Stocks to Buy in November

If you want passive income, high yield dividend stocks are the clear choice. These are the best, and safest, out…

Read more »

Stocks for Beginners

Where will Loblaw Stock be in 5 Years?

Want a great food stock that can provide growth and income? Here's why Loblaw stock can offer that and more.

Read more »