AC: Share Repurchases Will Drive Future Upside Amid Near-Term Operational Headwinds

Analysts have modestly reduced their Air Canada price target by C$1. This reflects a series of lowered Street targets and a cautious outlook on near term upside amid operational headwinds and limited positive catalysts.

Analyst Commentary

Street research remains mixed on Air Canada, with a cluster of modest price target cuts and one new coverage initiation reinforcing a wait and see stance. While several firms still see fundamental upside, the revisions collectively point to a more balanced risk reward profile in the near term.

Bullish Takeaways

• Bullish analysts who maintain Outperform or Buy ratings argue that the recent price target trims are more about adjusting to near term volatility rather than signaling a structural change in the long term earnings power of the franchise.
• Several updated targets in the mid C$20s still sit comfortably above the current share price. This implies upside potential if management executes on cost control and network optimization once labor and operational disruptions ease.
• Where targets were lowered only incrementally, bullish analysts highlight that valuation remains compelling relative to historical trading ranges and global airline peers. This is particularly the case if yield compression proves less severe than feared.
• The initiation at Neutral with a defined upside case underscores that, under a more constructive macro and demand scenario, there is room for multiple expansion and earnings upgrades over time.

Bearish Takeaways

• Bearish analysts emphasize that repeated downward revisions to price targets, even when small, signal increasing uncertainty around near term earnings quality and the timing of a sustained recovery in margins.
• Concerns focus on several headwinds to execution, including weaker than expected Q3 performance tied to strike related disruptions, potential yield pressure as demand normalizes, and ongoing labor risk that could cap operational flexibility.
• Neutral stances and downgrades reflect the view that, although the shares are not expensive on traditional metrics, the lack of clear positive catalysts limits the case for multiple expansion over the next few quarters.
• With multiple firms now clustered around low to mid C$20s price targets, some bearish analysts see a more balanced or even skewed to the downside risk reward setup if traffic or pricing trends underperform current forecasts.

What's in the News

• The board authorizes a new share repurchase program allowing Air Canada to buy back up to 29.6 million shares (roughly 10 percent of shares outstanding) through November 2026, aiming to enhance shareholder value.
• Air Canada and Emirates extend and deepen their strategic partnership to 2032, with expanded codesharing, loyalty benefits, and a potential cargo joint venture to strengthen tourism and trade links between Canada, the Middle East, and beyond.
• Air Canada launches its most extensive North American cabin renewal. Initiatives include transitioning 737 MAX 8s to Rouge, upgrading A320 and A321 interiors, rolling out fast, free Wi-Fi and complimentary snacks and beverages, and modernizing Air Canada Express regional cabins.
• Network expansion accelerates with new and announced routes. These include Ottawa and Halifax to Nassau, Toronto to Rio de Janeiro, added European destinations such as Berlin, Nantes, Ponta Delgada, and Brussels, and expanded transborder service from Billy Bishop and other Canadian hubs.
• Air Canada issues third quarter 2025 guidance projecting operating income between 250 million dollars and 300 million dollars, including approximately 175 million dollars of one-time non-cash pension and labour-related charges.

Valuation Changes

• Fair Value Estimate remains unchanged at approximately CA$24.24 per share, indicating no revision to the intrinsic value assessment.
• The Discount Rate is stable at 11.17 percent, reflecting no change in the assumed cost of capital or risk profile.
• Revenue Growth is effectively unchanged, with the long term growth assumption nudged fractionally from 6.65 percent to 6.65 percent, a move too small to impact the overall valuation.
• The Net Profit Margin is effectively unchanged, with the long run margin assumption trimmed only at the fourth decimal place, remaining at roughly 2.54 percent.
• The Future P/E is stable at about 11.7 times, signaling no shift in the forward multiple applied to Air Canada earnings.