Air journey has at all times been a risky enterprise. Between gas costs, geopolitical tensions, financial slowdowns, and world well being crises, airways are not any strangers to turbulence. However some corporations, regardless of all this, handle to emerge stronger, leaner, and extra centered. Air Canada (TSX:AC) is shaping as much as be considered one of them. And whereas many traders nonetheless deal with the inventory with warning, I’d argue that now that whereas it trades under $19, it’s the time to concentrate.
What occurring now?
Air Canada inventory trades at $18.79 as of writing. That’s practically 30% under its 52-week excessive of $26.18, giving long-term traders an opportunity to scoop up the nation’s largest airline at a reduction. If I had money to spend money on a Tax-Free Financial savings Account (TFSA) now, I’d really feel assured shopping for this inventory at at this time’s costs.
Let’s begin with the corporate’s second-quarter 2025 outcomes. Air Canada inventory reported $5.632 billion in working income, up 2% 12 months over 12 months. Its adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) reached $909 million, for a robust 16.1% margin. Even with a modest dip in web revenue from $410 million to $186 million, Air Canada inventory stays extremely worthwhile with adjusted earnings per share of $0.60. That’s an enormous feat in an business the place profitability is commonly fleeting.
Extra importantly, the corporate continues to enhance its stability sheet. Internet debt sits at $4.76 billion, which can sound hefty, however the leverage ratio is a manageable 1.4. Free money move for the quarter was $183 million, and working money move reached $895 million. It’s value noting that Air Canada inventory additionally accomplished a $500 million share buyback through the quarter, exhibiting that administration believes the inventory is undervalued, too.
What to look at
So, what’s holding the inventory again? First, demand development has plateaued after the post-pandemic increase. Income passenger miles (RPMs) and cargo components have been down barely 12 months over 12 months, whilst obtainable seat miles (ASMs) elevated. Which means extra empty seats, and whereas the airline business stays susceptible to shocks like rising gas costs or new tariffs, Air Canada has proven it may possibly adapt. That’s large contemplating latest information of a 35% U.S. tariff on Canadian imports. Actually, its jet gas prices dropped 15.7% from a 12 months in the past, thanks to raised hedging and operational effectivity.
One other shiny spot is the corporate’s diversification. Air Canada Cargo, Aeroplan, and Air Canada Holidays are all performing effectively and offsetting a number of the ups and downs in core passenger journey. To not point out the latest growth of its Landline luxurious motorcoach service to Kingston, Ont., a artistic technique to increase community attain with out including costly regional flights. That is sensible, low-risk innovation.
Now, let’s speak valuation. Air Canada’s trailing price-to-earnings (P/E) ratio is simply 4.83, whereas its ahead P/E is underneath 10. For an organization producing constant earnings and actively returning money to shareholders, that’s absurdly low-cost. It additionally trades at simply 0.31 occasions gross sales and three.16 occasions e-book worth. Sure, the airline doesn’t at the moment pay a dividend. However with a stable free money move profile and no payout obligations, that money can be utilized for reinvestment and buybacks.
Silly takeaway
In fact, dangers stay. Journey demand might weaken. Gasoline costs might rise. One other pandemic or geopolitical occasion might floor plane and tank income. However betting on Air Canada inventory isn’t about avoiding danger. It’s about embracing calculated danger in trade for vital upside. And proper now, you’re shopping for at a second when the corporate is lean, disciplined, and positioned for development.
To me, this setup is precisely what the TFSA was made for: long-term, tax-free compounding. If Air Canada hits its 2028 goal of $30 billion in income and sustains an adjusted EBITDA margin above 17%, the earnings development might be substantial. And if the inventory merely returns to its 52-week excessive, you’d already be sitting on a 39% achieve from at this time’s worth.
So, sure, whereas the skies aren’t utterly clear, they’re removed from stormy, and at underneath $19, Air Canada inventory presents high-altitude upside with the precise mixture of persistence, confidence, and a robust abdomen. For long-term TFSA traders, it’s a chance that’s simply boarding.
