Air Canada Warehouse: Buy Now or Wait? – The brave fool Canada

Air Canada (TSX: AC) just released Q4 2020 results that show the depth of the challenges facing airlines. Investors with a look at rebound after the pandemic are wondering if the Air Canada stock is up cheap now or overbought.

Air Canada Q4 2020 results close out a terrible year

Analysts expected Air Canada to report ugly Q4 2020 results, but the size of the losses indicates how bad things really are right now for the airline.

Air Canada reported an operating loss of $ 1 billion. $ In the quarter. Net cash burn in the three months hit $ 1.384 billion dollars. It is above the top end of the guidance in the Q3 2020 report, but in line with the management update in December.

For the full year, Air Canada reported a net loss of $ 4.65 billion. Or almost $ 16.50 per. Share compared to a net income of DKK 1.48 billion. $ Or $ 5.44 per. Diluted stock in 2019.

On the positive side, Air Canada ended Q4 2020 with unlimited liquidity of $ 8 billion. Decisions made by management throughout the year and especially early in the pandemic enabled the company to raise funds and place the airline to withstand the pandemic storm in better shape than many of its global peers.

In Q4, the company raised $ 850 million through a share sale at $ 24 per share. Shares. Air Canada also received $ 485 million from the completion of the sale and return of nine 737 MAX 8 aircraft.

These measures effectively offset most of the net cash burn in the quarter. As a result, unlimited liquidity remains close to where it was at the end of 3. quarter 2020. The strong liquidity position has probably helped Air Canada to adopt a firm stance on negotiating assistance with the government.

Long-term prospects

In the Q4 earnings release, Air Canada’s outgoing CEO said he was “very encouraged by the constructive nature of discussions” with the Government of Canada in recent weeks. Negotiations on sector-specific assistance started in November. Global airlines received at least $ 160 billion in state aid by 2020, according to IATA.

Canada introduced new air travel restrictions in the last month. The requirement for negative COVID-19 tests before boarding planes en route to Canada resulted in a wave of canceled bookings. Recent measures include a ban on all flights to multiple holiday destinations. In addition, returning travelers must now be tested on arrival and must stay in a hotel for three days at their own expense. These efforts to keep COVID-19 variants out will affect Air Canada. Interprovincial quarantine requirements also continue to put pressure on domestic travel needs.

Air Canada expects a capacity decline of 83% in Q1 2021 compared to the same period in 2020.

Investors should also monitor the oil market. Oil prices are at 12-month highs. This will put upward pressure on the price of jet fuel, which typically accounts for 15-20% of an airline’s expenses. If oil holds or expands its gains, Air Canada and its peers could tighten margins.

Are you buying Air Canada shares now?

Air Canada received approval to purchase Transat for $ 5 pr. shares. When the pandemic ends and governments lift the restrictions, the deal could deliver strong long-term returns.

It sounds like an aid deal with the government is on the way. Investors need to keep an eye on it when a deal is announced, as the expected requirements for assistance can weigh margins and delay the return to profitability. For example, the immediate reintroduction of domestic routes to smaller cities and commitments to reduce carbon emissions could be part of the agreement.

Stock markets price stocks according to future expectations. Air Canada shares trade at $ 22 per share. Share at the time of writing. That’s about half of where it was before the pandemic.

The stock could certainly move higher at the announcement of a rescue, but investors may want to stay on the sidelines at this level. The road to recovery will be long and it may be several years before Air Canada returns to the size and level of profitability it had at the end of 2019.

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Poor contributor Andrew Walker has no position in any of the listed stocks.

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