This is recovery with a vengeance.
Air Canada shares are roaring back to life on a better-than-expected outlook for 2010 and a well-received refinancing plan. Not so long ago, concerns were being expressed that the airline might have to seek bankruptcy protection yet again.
Now, the Montreal-based air carrier is providing stronger guidance than previously for its capacity growth this year - as global air travel stages a comeback - and indicating it will book second-quarter results that soundly beat most analysts' estimates.
After soaring almost 14 per cent to $2.15 on Tuesday after the company's release of preliminary second-quarter earnings and plans for a $900-million (U.S.) refinancing, the stock continued its ascent Wednesday, closing up 7.9 per cent at $2.32 (Canadian).
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The carrier said Tuesday it expects second-quarter earnings before interest, taxes, depreciation, amortization and aircraft rent (EBITDAR) to reach between $320-million and $340-million, up from $135-million a year ago and well above many analysts' estimates. It also said it expects capacity in 2010 to increase by between 6 and 7.5 per cent, up from earlier guidance of 4 to 6 per cent.
Analysts scrambled to revise upwards their target prices and forecasts.
But it's still too soon to declare that the airline has fully bounced back.
"I'm not sure I want to characterize it as [the airline having reached a turning point]" said Cameron Doerksen, analyst with Versant Partners. "But seeing these improved results is a good sign, with increased demand in air travel."
Mr. Doerksen has raised his one-year price target to $4.50 from $4 and is maintaining his buy rating.
Chris Murray of PI Capital Corp. is impressed not only by the airline's stronger-than-expected results, but also by its refinancing move.
"The company's ability to raise funds in the current environment is supportive of our thesis that the outlook for Air Canada is improving and is being recognized in the markets," he wrote in a research note Wednesday.
But Mr. Murray remains cautious about how far advanced is the turnaround at Air Canada.
"It's nice to see the pickup, but the bigger question is still how they will manage to drive down unit costs," he said in an interview.
He has increased his target to $4.75 from $3.75.
Turan Quettawala at Scotia Capital Inc. said in a note Wednesday that Air Canada shares "represent an attractive investment opportunity" and raised his target price to $5 from $3.50.
Tim James of TD Securities views the refinancing as a positive, providing over $200-million (U.S.) in additional liquidity and what will likely be lower interest costs.
For Canaccord Genuity Corp.'s David Tyerman, Air Canada's rebound "is progressing faster and stronger than we expected. Demand is strong, pricing is gaining and unit costs are improving," he said in a research note Wednesday.
Adding to the good news is the strong third quarter - representing the peak summer travel season - that is shaping up, he said.
Mr. Tyerman is maintaining his buy recommendation and has a very bullish $11 one-year target on the stock, up from $10.75.