Can Air Canada (TSX:AC) Be A Bargain As It Backs SAF Growth With Airbus?
Air Canada (TSX:AC) and Airbus are creating a jointly funded Sustainability Co-Investment Platform to support commercial scale Sustainable Aviation Fuel projects in Canada, alongside a long term SAF environmental-attribute purchase agreement.
See our latest analysis for Air Canada.
At a share price of CA$22.81, Air Canada has posted a 90 day share price return of 21.2% and a 1 year total shareholder return of 6.5%. However, 3 and 5 year total shareholder returns remain in decline, suggesting improving momentum in the short term against a weaker longer term record as investors weigh recent customer experience upgrades, loyalty partnerships and the announced CEO transition.
If this kind of travel focused story interests you, it may be a good time to see what else is on the move through our screen of 3 top founder-led companies
Bulls point to Air Canada’s customer upgrades, loyalty tie ups and sustainability push, while bears focus on mixed multi year returns and upcoming CEO change. How does the current valuation stack up against those competing stories?
Most Popular Narrative: 2% Overvalued
Based on the most followed narrative, Air Canada’s fair value of about CA$22.39 sits slightly below the last close at CA$22.81, putting a small premium on the current share price and framing a modestly cautious view on upside.
High and ongoing capital expenditures for fleet modernization (A220s, 737 MAX, imminent A321XLRs and 787s) combined with volatile fuel prices and currency fluctuations sustain pressure on free cash flow, increase depreciation expense, and could negatively impact net margins if returns on investment are not realized.
Want to understand why this fair value barely sits below the market price? The narrative leans heavily on measured revenue growth, tighter margins and a future earnings multiple that assumes solid execution without stretching expectations.
Result: Fair Value of CA$22.39 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, higher jet fuel costs and rising labor expenses at Air Canada could pressure margins and weaken the case for even a small valuation premium.
Find out about the key risks to this Air Canada narrative.
Another View on Air Canada’s Valuation
While the analyst fair value of CA$22.39 suggests Air Canada is slightly overvalued at CA$22.81, the current P/E of 8x looks low compared with a fair ratio of 13.7x, the global airlines average of 9.7x and the peer average of 19.1x. Is the market underpricing potential or simply pricing in risk?
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
If this Air Canada story seems finely balanced between concern and optimism, take a closer look at the data now and weigh both sides for yourself with 3 key rewards and 2 important warning signs
Looking for more investment ideas beyond Air Canada?
If Air Canada has sharpened your interest, do not stop here. Broader market ideas can help you cross check your thinking and uncover opportunities you might otherwise miss.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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