Technical Analysis of Air Canada 1D Chart
This time we observed an Ascending Triangle pattern with Three confirm bottoms and Two confirmed tops (Triangle in Yellow). The triangle has now broken out of the downward direction with a corresponding higher volume of selling, which almost confirms the new downtrend with technical analysis (shown in Purple). Generally speaking the height of the triangle is what should drop in this instance (Shown in Green).
As we mentioned previously in A&T Corp. we believe in combining Fundamentals with Technical Indicators to place our trades, we will now look at the Fundamentals of Air Canada stocks.
Fundamental Analysis of Air Canada
The company boast a significant Moat in the Canadian Air space, however, due to current COVID-19 situation the airline is draining cash rapidly.
Latest earnings have revealed Air Canada lost over $1.0 B in the first quarter of 2020. Now, keep in mind that only the last 15 days of March were the most significant in terms of trouble due to Canadian Governments asking of travel bans. That means only 15 days out of the 90 days caused the majority of the problems.
In the 2nd Quarter we can expect another significant blow to the company's balance sheet but this time with 90 days of shut-downs. However, due to lay-offs and parking of jets the company managed to do some damage control in terms of draining cash. So we do our math as the following:
Given,
15 days = $1.0 B loss
Therefore,
next 90 days = $6.0 B loss, however, due to stopping flights and massive lay-offs this will be significantly reduced. Therefore, we say it's only 1/3 of the estimated.
or, next 90 days (Strict measures) = $2.0 B in losses.
By the time 2020 is over the company will loose it's cash pile of over $5.0 B and will be sitting on a pile of $9.0 B (Current liabilities). The book value will be reduced down close to $0.0 or may be even negative.
Additional Notes:
Once, lock down eases throughout Canada, we cannot expect people to travel around freely and go back to normal. This will still continue to impact the airline industry with reduced travelling from Tourism and Businesses. Now, we all may know that Business class passengers are the ones that makes money for the airline companies and with them at home (Using Zoom) the flag carrier will continue to hurt badly.
Our estimates suggests that without a vaccine for Corona Virus the airline industry will continue to drain cash. Which brings us to the next question, what about a bail-out from the Trudeau government? A bail-out can have different structures, recent bail-outs have only helped corporate bond holders and not common stock (share) holders. This would mean in case the company is about to go bankrupt and a government bail-out comes, it still won't help us common stock holders.
Bottom Line:
Using a combination of Fundamental and Technical Analysis we at A&T are shorting it in the medium term with short positions activated at $21.0 and will be open to $13.0. Short positions will be protected with stop limits at jumping back inside the triangle @ $19.95.
Fundamental investors will see the problem and will stay away from the stock in the mean-time. While, retail investors with buying the dip mentality will continue to pour money in without understanding the underlying risks associated with this stock at the moment.
This time we observed an Ascending Triangle pattern with Three confirm bottoms and Two confirmed tops (Triangle in Yellow). The triangle has now broken out of the downward direction with a corresponding higher volume of selling, which almost confirms the new downtrend with technical analysis (shown in Purple). Generally speaking the height of the triangle is what should drop in this instance (Shown in Green).
As we mentioned previously in A&T Corp. we believe in combining Fundamentals with Technical Indicators to place our trades, we will now look at the Fundamentals of Air Canada stocks.
Fundamental Analysis of Air Canada
The company boast a significant Moat in the Canadian Air space, however, due to current COVID-19 situation the airline is draining cash rapidly.
Latest earnings have revealed Air Canada lost over $1.0 B in the first quarter of 2020. Now, keep in mind that only the last 15 days of March were the most significant in terms of trouble due to Canadian Governments asking of travel bans. That means only 15 days out of the 90 days caused the majority of the problems.
In the 2nd Quarter we can expect another significant blow to the company's balance sheet but this time with 90 days of shut-downs. However, due to lay-offs and parking of jets the company managed to do some damage control in terms of draining cash. So we do our math as the following:
Given,
15 days = $1.0 B loss
Therefore,
next 90 days = $6.0 B loss, however, due to stopping flights and massive lay-offs this will be significantly reduced. Therefore, we say it's only 1/3 of the estimated.
or, next 90 days (Strict measures) = $2.0 B in losses.
By the time 2020 is over the company will loose it's cash pile of over $5.0 B and will be sitting on a pile of $9.0 B (Current liabilities). The book value will be reduced down close to $0.0 or may be even negative.
Additional Notes:
Once, lock down eases throughout Canada, we cannot expect people to travel around freely and go back to normal. This will still continue to impact the airline industry with reduced travelling from Tourism and Businesses. Now, we all may know that Business class passengers are the ones that makes money for the airline companies and with them at home (Using Zoom) the flag carrier will continue to hurt badly.
Our estimates suggests that without a vaccine for Corona Virus the airline industry will continue to drain cash. Which brings us to the next question, what about a bail-out from the Trudeau government? A bail-out can have different structures, recent bail-outs have only helped corporate bond holders and not common stock (share) holders. This would mean in case the company is about to go bankrupt and a government bail-out comes, it still won't help us common stock holders.
Bottom Line:
Using a combination of Fundamental and Technical Analysis we at A&T are shorting it in the medium term with short positions activated at $21.0 and will be open to $13.0. Short positions will be protected with stop limits at jumping back inside the triangle @ $19.95.
Fundamental investors will see the problem and will stay away from the stock in the mean-time. While, retail investors with buying the dip mentality will continue to pour money in without understanding the underlying risks associated with this stock at the moment.