Scotiabank adjusted its outlook on Air Canada (AC:CN) (OTC: ACDVF), increasing the price target to Cdn$24.00 from the previous Cdn$22.00, while keeping a Sector Outperform rating on the stock. The adjustment comes after Air Canada's pilots ratified a new four-year contract, effective until September 29, 2027, which was more costly than the analyst initially expected.
The ratification of the pilot contract has averted a potential strike, allowing Air Canada's management to concentrate on strategic priorities aimed at enhancing shareholder value. Despite the contract's higher costs impacting margin forecasts, the analyst sees a positive aspect in the stability it brings to the company. The stock has seen an uptick since the tentative deal was announced on September 15, and the analyst believes that its valuation multiple still has room for improvement when compared to historical figures and U.S. counterparts.
Scotiabank's revised price target reflects several factors, including the impact of labor uncertainties on revenue per available seat mile (RASM) from late August to early October, the cost per available seat mile (CASM) implications of the new pilot contract, and a recent decrease in jet fuel prices. The target increase is also driven by a slight expansion in the valuation multiple to 3.7x from 3.5x and a valuation roll-forward to 2026 estimates.
The analyst's expectations for Air Canada's 2025-2026 EBITDA remain largely unchanged, but there has been a slight increase in net debt estimates. The analyst concludes that while the new pilot contract may be costlier than anticipated, the removal of labor risk and the potential for strategic advancements could lead to a re-rating of the airline's stock in the upcoming quarters.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.