When the Canadian greenback begins to strengthen, good buyers search for shares that profit immediately from forex shifts. One of many clearest winners when the Loonie rises is Air Canada (TSX:AC). The airline sector and Air Canada inventory, particularly, are extremely delicate to forex fluctuations due to how a lot of its prices are tied to the U.S. greenback. That features plane leases, upkeep, airport charges, and jet gas. A stronger loonie means these prices grow to be cheaper, and that may result in higher margins and extra investor confidence. Let’s get into why.
The numbers
As of the newest replace, Air Canada inventory trades at about $19.80 per share, with a market cap of round $6.4 billion. It’s the nation’s largest airline, with routes throughout Canada, the U.S., Europe, Asia, and extra. That world presence offers it a broad buyer base and important pricing energy. It additionally implies that any change in prices, particularly these tied to forex, can have a serious impact on the underside line.
Within the first quarter of 2025, Air Canada inventory reported income of $5.2 billion. That was up barely from the 12 months earlier than. Nevertheless, it nonetheless posted a internet lack of $102 million for the quarter. Whereas that’s not perfect, it’s an enormous enchancment over the $644 million loss within the earlier quarter. Gross margins stay sturdy at 29.6%, and the corporate’s trailing 12-month internet earnings is roughly $1.7 billion. Earnings per share (EPS) over the past 12 months are $4.71. Whereas airways are not often easy rides, this exhibits Air Canada inventory is stabilizing post-pandemic and making strides in profitability once more.
Fortunate loonie
A rising loonie would give it an enormous tailwind. That’s as a result of a lot of Air Canada’s working bills are in U.S. {dollars}, whereas most of its income is in Canadian {dollars}. When the Canadian greenback strengthens, it reduces these bills, widening margins. It additionally makes worldwide journey extra interesting to Canadians, since a powerful loonie improves spending energy overseas. That may enhance demand for worldwide flights and enhance ticket gross sales.
Air Canada inventory’s administration appears optimistic in regards to the future. The airline lately introduced a $500 million share buyback program set to run till September 2025. That’s a powerful sign that administration believes the inventory is undervalued. It additionally exhibits confidence in future money flows. Along with the buyback, Air Canada inventory has been including new worldwide routes to locations like Manila, Porto, and Prague. This type of strategic growth might repay if demand holds up and working prices decline because of forex assist.
Concerns
Regardless of these positives, there are nonetheless dangers. The airline carries a debt-to-equity ratio of 5.1, which is excessive. Gas costs and labour prices additionally stay elevated, and the worldwide journey trade is delicate to sudden shocks. A weaker loonie would reverse most of the potential advantages talked about earlier. However should you’re assured that the Canadian greenback is poised to rise, Air Canada inventory turns into a way more engaging alternative.
Valuation-wise, the inventory is buying and selling nicely under its pre-pandemic highs. Analysts estimate it might be undervalued by practically 80% relative to honest worth, with anticipated annual income development of 5.3%. The airline can also be buying and selling above its 20-day, 50-day, and 200-day shifting averages, which factors to optimistic short-term momentum at writing.
Backside line
Air Canada inventory doesn’t pay a dividend, so this isn’t an earnings play. However should you’re in search of development and assume the loonie is on the rise, it’s a compelling possibility. Few corporations are as immediately affected by forex adjustments as a world airline. That makes Air Canada inventory uniquely positioned to learn if the Canadian greenback continues to climb.
Briefly, Air Canada inventory isn’t for the faint of coronary heart. However with enhancing fundamentals, a powerful journey rebound, and a rising loonie, it could possibly be among the finest TSX shares to personal proper now for a currency-driven upside.
