Business

Despite a tanking stock, Air Canada may just bounce back – The Globe and Mail

Published

5 years ago

February 27, 2020

The tails of two Air Canada aircraft sitting by gates at Toronto Pearson International Aiport, on Oct. 27, 2019. The airline’s share price has tumbled 33 per cent from its recent high on Jan. 13.

Fred Lum/The Globe and Mail

Among the stock market wreckage of the past week, Air Canada has been downright steamrolled. But the beaten-up stock may hold special appeal as a rebound candidate.

The airline’s share price has tumbled 33 per cent from its recent high on Jan. 13. Most of the damage has occurred over the past week, though, as concerns over the global spread of the new coronavirus (also known as COVID-19) and its impact on global economic activity grip investors.

The S&P/TSX Composite Index has fallen about 5 per cent since Feb. 19, but Air Canada has slumped 23 per cent. That makes it one of the worst-performing stocks in the index during the current sell-off. It has also fallen harder than its U.S. peers in the S&P 500 Airline Index during this period.

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The prospect of unsold seats and cancelled flights amid the spread of COVID-19 is clearly one of the key reasons for the airline sector’s sharp decline.

It’s a real fear. Late last month, Air Canada announced that it was suspending select flights to China – the hardest hit country by far – for the month of February. It extended the cancellations to April 10 in an announcement on Tuesday. COVID-19 breakouts in Italy and South Korea, both major economies, are no doubt raising concerns about additional suspensions and declining airline traffic.

To make matters worse, Air Canada had been a particularly hot stock within the airline sector before the downturn because of its rising profit margins and strong balance sheet. That made it vulnerable to a selloff.

The share price surged about 280 per cent from the start of 2017 to its high in January, even as regulators grounded its fleet of Boeing 737 Max planes over safety concerns, driving the stock’s valuation to a premium relative to other airlines.

Analysts have been overwhelmingly bullish on Air Canada, with 14 buy recommendations, just two holds and no sell recommendations, according to Bloomberg, leaving little room for error – or a pandemic. Swirling uncertainly over air traffic is now hitting sentiment toward Air Canada particularly hard.

But the stock is loaded with rebound potential.

CIBC analyst Kevin Chiang put some numbers on Air Canada’s worst-case exposure to COVID-19 by comparing the airline with Cathay Pacific during the 2003 SARS outbreak. China was the epicenter of that outbreak, which hit the Hong Kong-based airline particularly hard: Capacity fell 6 per cent, year over year, and passenger revenue fell nearly 17 per cent.

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If Air Canada’s fate is similar, Mr. Chiang estimates its 2020 revenue will fall to $16.5-billion from $19.1-billion in 2019. EBITDA (or earnings before interest, taxes, depreciation and amortization) would fall to $2.6-billion, which is $1-billion below the analyst’s current 2020 estimate.

It sounds grim. But here’s the opportunity: Mr. Chiang believes that the downside scenario is already reflected in Air Canada’s share price, which leaves a lot of upside opportunity if the crisis abates and sentiment improves. He expects that the stock can rise to $57 within 12 months.

The analyst pegs the downside at about $35 a share, slightly above Wednesday’s closing price of $34.92, after the stock fell another 6.6 per cent. That marks the lowest price since May, 2019, and down from a high of $52.09 on Jan. 13.

There are risks, of course, that the downside scenario gets worse. Apart from the volatile stock market, declining yields on U.S. government bonds are telegraphing slower economic growth, as factories close and trade networks grind to a halt in reaction to the COVID-19 outbreak.

What’s more, the inverted yield curve – three-month U.S. Treasury bills are yielding more than 10-year U.S. Treasury bonds – may signal an oncoming recession. That could weigh further on the stock market, and especially economically sensitive stocks such as airlines.

But if you’re looking for opportunities amid the stock market selloff and you believe that the COVID-19 outbreak will pass without long-lasting economic damage, Air Canada looks like a compelling bet.

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Business

Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

Published

15 hours ago

September 13, 2024

Anne Joseph

TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

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Business

Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

Published

2 days ago

September 12, 2024

Anne Joseph

VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

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Business

Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

Published

2 days ago

September 12, 2024

Anne Joseph

MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.

The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.

The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.

Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.

On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.

Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:TRZ)

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