BMO Capital Markets has maintained its Outperform rating on Air Canada (AC: CN) (OTC: ACDVF), with a steady price target of Cdn$28.00.
The firm's analysis suggests that the airline is set to recover from a challenging year marked by post-pandemic demand normalization and rising inflation, which have compressed profit margins below long-term averages.
Air Canada recently reached a ratified agreement with its pilots, a development that, alongside subsiding inflationary pressures, is expected to shift the company's focus toward capital allocation.
BMO Capital anticipates this change in strategy will lead to accretive growth and substantial returns for shareholders, ultimately benefiting the company's valuation.
The airline's performance in the past year was impacted by the dual challenges of adapting to a post-pandemic market and dealing with inflationary pressures. These factors contributed to Air Canada's margins falling short of their historical trends. However, the outlook is improving as the company moves past these hurdles.
The ratified agreement with pilots is a significant step for Air Canada, as it could lead to more stable operations and cost management. This stability, combined with an economic environment where inflationary pressures are expected to ease, provides a more favorable backdrop for the company's future financial planning and investment decisions.
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