WestJet: In Flight in Canada

08/24/2017 2:50 am EST

Focus: TRANSPORTATION

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

WestJet Airlines (WJAFF), with headquarters in Calgary, is one of the leading airlines in Canada. The airline’s low-airfare approach has enabled the company to expand rapidly during the past five years, says Roy Ward, editor of Cabot Benjamin Graham Value Investor.


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WestJet, WestJet Encore and the company’s 10,000 employees now serve 120 destinations in North America, Central America, the Caribbean and Europe.

WestJet flies 119 Boeing 737s and Bombardier Q400s making WestJet’s fleet one of the youngest in the business, averaging 7.2 years per jet. The company prides itself on offering outstanding service; it was ranked as Canada’s most trusted airline in 2017.

WestJet beat second quarter estimates by a wide margin. Sales grew 11% and EPS soared 37%. WestJet achieved record capacity utilization during the second quarter of 82.8% and flew a record 5.9 million guests, a year over year increase of 11.5%.

WestJet continues to add new routes to its system and new aircraft to its fleet. Results were hampered by a slowing oil-dependent Canadian economy during the past 18 months. Revenue will likely increase 7% and EPS will climb 15% during the next 12 months ending June 30th, 2018.

The pickup in Canada’s economy will help WestJet to post noticeably better results during the next several quarters. The Canadian economy is finally beginning to perk up after several years in the doldrums.

Last month, the Bank of Canada raised interest rates for the first time in seven years, a sign that the central bank believes Canada’s economy will strengthen during the next several quarters. A stronger Canadian economy and the usual surge in summer travel bode well for WestJet.

At 13.6 times current EPS and with a dividend yield of 2.2%, WJA.TO shares are clearly undervalued. WestJet shares are offered on the Toronto Exchange with the symbol WJA.TO and on the U.S. Over-the-Counter market with the symbol WJAFF.

I expect the Toronto-listed shares to rise 32% to my minimum sell price of $34.24 Canadian dollars within two years. I expect the OTC-listed shares to reach a target of US$26.98.

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