The airline industry will grow despite the Russia-Ukraine conflict. This is due to a rebound in demand. Air Canada (ACDVF), Gol Linhas Aereas Inteligentes S.A.(GOL) and Copa, S.A.(CPA), all of which appear to be poised for a rise, could therefore be worth purchasing in May. Continue reading.
Air travel has experienced a slow and unsteady recovery since the end pandemic travel restrictions. However, the market is on track to reach full profitability by the end of this year.
Air Canada (ACDVF), Gol Linhas Aereas Inteligentes S.A.(GOL), and Copa Holdings S.A.(CPA) are all strong airlines with solid fundamentals.
IATA (International Air Transport Association) expects that the industry will post a profit of $4.7 Billion this year. More than 4 Billion passengers are expected to fly. It is expected that the airline industry will record revenues totaling $779 billion in this year. This will be largely due to a continuing rebound in passenger demand.
The airline industry is expected to grow despite the fact that the conflict between Ukraine and Russia caused jet fuel to skyrocket, increasing the price of tickets. The global aviation industry is also expected to grow by 4.8% annually, reaching $36.46 billion by 2028.
The recovery of demand and activity levels has been encouraging and steady across all airlines. By the end this year, it is expected that the global demand for air passengers will grow by nearly 3% compared to pre-pandemic levels.
Let's talk about the stocks listed above in detail.
Air Canada (ACDVF)
ACDVF is a Canadian airline with its headquarters in Saint-Laurent. It provides domestic, U.S. Transborder and international services. Air Canada Vacations, Air Canada Rouge, and other regional carriers provide scheduled passenger service in Canada, in the Canada-U.S. Transborder Market, in the International market from and to Canada, and through capacity purchase agreements.
ACDVF announced on May 3, 2023 that they would be partnering with Bell for a number of years to make it easier for people to stay in touch, both on land and in the air.
This partnership is a result of ACDVF's and Bell's commitment to elevating customer experience. It also focuses on benefits for visitors and newcomers to Canada. They are prepared to connect with Canada's best networks as soon as their plane lands.
ACDVF announced on April 13 that it would be expanding its international network by adding new non-stop flights between Vancouver International Airport (YVR), its hub, and Dubai.
Air Canada will fly the new route four times a week starting October 28, 2023 on its flagship Dreamliner aircraft. Air Canada will add new flights between Vancouver and Dubai to its daily service between Toronto, Dubai and Toronto. This will allow the carrier to expand their presence in rapidly growing international markets.
ACDVF's EV/Sales multiple of 0.78x in the future is 50.1% less than the industry standard of 1.57x. The company's P/S forward multiple of 0.36 represents a 71.7% reduction in comparison to the industry average.
ACDVF’s operating revenue grew 14.7% over the previous year to CAD4.68 (US$3.50) billion during the fourth quarter of fiscal 2022. The adjusted EBITDA increased 4.1% over the past year to CAD389 ($290.73) million, while its adjusted loss-per-share decreased by 62.7%.
ACDVF expects its revenue to grow 68.3% over the previous year to $3.38 Billion for the first fiscal quarter ending March 2023.
ACDVF shares have gained 15% in the last six months, closing the last trading session on $15.67.
ACDVF's Power Ratings reflect a promising outlook. The stock is rated B overall, which in our rating system translates into a Buy. The POWR ratings are calculated using 118 factors. Each factor is weighted optimally.
Stock has been given a Growth grade of B. The stock is ranked #10 among 27 stocks within the B-rated airlines industry.
ACDVF is rated for Sentiment as well as Quality, Value and Stability. All MSI ratings are available here.
Gol Linhas Aereas Inteligentes S.A.
GOL, with its headquarters in Sao Paulo in Brazil, provides passengers and cargo scheduled and non-scheduled transportation, as well as maintenance services on aircraft and component parts in Brazil and abroad.
GOL's forward EVA/sales multiple of 1.32x compares to the industry average of 1.51x by 17.8%. The company's P/S forward multiple of 0.16 compares to the industry average of 1,29. This is 87.6% less than GOL.
GOL's operating net revenue increased 52.8% over the previous year to R$4.9billion ($985.59m) for the first quarter of fiscal 2023 that ended on March 31, 2023. Net revenue per seat kilometer has increased by 37.7% over the past year to R$43.8. Recurring EBITDA grew 25.2% over the past year to R$1.2billion ($241.37m).
Street estimates that GOL's revenues for the second fiscal quarter ending in June 2023 will increase by 35.1% over last year to $848.28 millions. It has also exceeded consensus revenue estimates for three of the last four quarters.
The stock closed the last trading day at $2.94, up 23% in the past month.
GOL's strong prospects are reflected by its POWR ratings. The stock is rated B, which is equivalent to a buy in our proprietary system.
GOL is rated B for Growth, Sentiment, and Quality. It is ranked 8th in the same industry.
Click here to view the additional POWR ratings for GOL (Momentum Stability and Value).
Copa Holdings, S.A. (CPA)
CPA is based in Panama City. The company offers airline passenger and freight services. From its hub in Panama City, the company operates approximately 327 scheduled flights daily to 78 destinations across 32 countries of North, Central and South America as well as in the Caribbean.
CPA's EV/Sales multiple of 1.35x, which is the forward estimate for CPA, is 16.3% less than the average industry figure of 1.61x. CPA's P/S forward multiple of 1.13, which is 13% less than the industry average 1.29, is 16.3% lower.
CPA pays out $3.28 in dividends annually, which is equivalent to a yield at current prices of 3.43%. Its average dividend yield over the past four years is 1.48%.
CPA's first-quarter operating revenue increased by 2.4% to $867.26 millions. This was the highest quarter-over quarter increase since March 31, 2023. Its net profit increased by 37.7% to $121.5million, while its EPS grew 37.6% to $3.07.
CPA's second-quarter revenue, ending in June 2023, is expected to grow 12.12% over the previous year to $777.46 millions. The EPS of the company for the same period is expected to rise 550.6% over last year to $2.08.
CPA closed its last trading session at $95 to reflect a 37.7% gain over the past 12 months.
CPA's robust outlook is reflected in its POWR Ratings. The stock is rated B overall, which in our rating system translates into a Buy.
CPA has also received an A for Growth and Quality. It is ranked 7th in the same industry.
Click here for additional ratings of CPA's Value (Momentum), Stability (Stability), and Sentiment.
ACDVF shares traded at $15.57 on Thursday morning. This was down $0.10 (0.64%). ACDVF shares have gained 7.98% year-to-date compared to the 7.87% increase in the benchmark S&P 500 Index during the same time period.
Nidhi Agarwal is the author.
Nidhi's passion for the capital markets and wealth management led her to pursue an investment analyst career. She has a Bachelor's Degree in Finance and Marketing and is currently pursuing the CFA Program. Her fundamental approach to analysing stocks helps investors identify investment opportunities.