Air Canada 'significantly undervalued' compared to industry peers, say analysts

As Air Canada pilots vote whether to ratify a four-year agreement with the airline, some analysts say the company is "significantly undervalued" compared to its peers, and opportunity lies ahead for investors if the deal is ratified. The impact of the agreement, reached right before the strike deadline, will likely weigh on the airline's upcoming quarterly results due to higher costs if the deal if ratified, as well as an increase in the number of customers that likely turned away from the airline over concerns about a potential strike. Still, TD Cowen analysts Tom Fitzgerald and Helane Becker wrote in a research note on Tuesday that the airline is "taxiing towards outperformance" and "remains significantly undervalued." The analysts lowered Q3 and Q4 earnings estimates for Air Canada due to expected pilot wage inflation and customers likely booking away from the airline because of fear of a pilot strike, but expect that margins "have bottomed this year" and will improve going forward. They have a "buy" rating on Air Canada's stock, and a price target of $19 per share. "Air Canada remains significantly undervalued on an EV/EBITDA basis versus other full-service carriers. We believe this valuation gap will close once pilot negotiations are in the rearview, shareholder returns are announced, and the recovery in long-haul Asia Pacific traffic continues to benefit Air Canada's results," Fitzgerald and Becker wrote.<br/>