WestJet: Canadian Flyer

12/31/2015 10:00 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our latest featured value idea is—with headquarters in Calgary, Alberta—one of the leading airlines in Canada; its low airfare approach has enabled the company to expand rapidly during the past five years, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

WestJet Airlines (TSX:WJA) and its 10,000 employees now serve 90 destinations in North America, Central America, the Caribbean, and Europe.

The airline flies 114 Boeing 737s and Bombardier Q400s making WestJet’s fleet one of the youngest in the business at 6.8 years. The company prides itself in providing outstanding service to passengers.

WestJet is a JD Power Customer Service Champion (one of two companies in Canada) and ranks third in Aon Hewitt’s best employers in Canada.

It was also chosen as Canada’s most preferred airline in 2014. WestJet continues to add new routes to its system and new aircraft to its fleet. Revenues likely increased 2% and EPS climbed 24% in 2015. Lower fuel prices provided a big boost to earnings.

I expect revenues to rise 6% and EPS to surge 16% to $3.15 CAD (Canadian dollars) during the next 12-month period. Earnings could exceed my forecast if oil prices remain low, although the weakening Canadian economy—which depends on Canadian oil and commodity businesses—could impede WestJet’s progress.

At 7.4 times current EPS and a dividend yield of 2.8%, the Toronto-listed shares are clearly undervalued. I expect the stock to rise 63% to my minimum selling price of $32.69 CAD within two years.

I expect the US-listed shares to reach my $24.17 USD minimum selling price within two years also. WJAVF is thinly traded so caution is advised. Buy at the current price.

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