Air Canada (TSE:AC.B), the nation's largest airline, jumped to its highest price in almost five years on Friday, after saying costs for the third quarter and full year will decline more than anticipated, with analysts bumping up the company's target price on the back of the news.
BMO Capital Markets analyst Fadi Chamoun, who has an outperform rating on the Canadian airline, lifted his target price to $5.00 from $4.00 previously, while analysts at National Bank Financial upped the target to $4.75 from $3.75.
In an update released to markets late Thursday, Air Canada said that costs for each seat flown a mile, a measure of airline efficiency, will drop 3 percent to 3.5 percent in the third quarter. In August, the company had predicted a decline of 1.5 to 2.5 percent.
For the full year, these costs are expected to be down 1.5 percent to 2.0 per cent year-over-year, versus prior guidance of down 1 percent to 2.0 percent.
The airline also reported a strong third quarter load factor of 86.2 percent versus the record of 86.3 percent last year, on increasing traffic and capacity growth.
"While the stock has risen 35% in the past month, the company is only starting to realize the benefits of its fairly sizeable CASM reduction opportunity over the next several years. We believe this would strengthen the company’s competitive position and open up new revenue growth opportunities, particularly in international markets," wrote BMO's Chamoun, who raised the bank's full year EBITDAR (Earnings Before Interest, Taxation, Depreciation, Amortization and Rent) estimate by 3.2 percent to reflect the updated guidance.
"The positive outlook for revenues and costs and improved pension funding position also translate into a lower financial risk, which should allow for valuation to further re-rate going forward."
For the year, the airline says depreciation, amortization and impairment expenses will decrease $115 million, aircraft maintenance expenses will fall $40 million and employee benefits expenses will increase $70 million from 2012.
Shares of Air Canada climbed to a new 52-week high on Friday of $4.51, lately up at $4.42 in afternoon deals, a rise of more than 11 percent.