Westjet Stock

[shockwave]

WJA stock price has been on quite the dive in the last few months. Its starting to look a little tempting in this range, any thoughts? (I know its an airline stock).

[ws pilot]

I've no idea what's going on. Looks quite undervalued to me. The P/E is below 10, the P/B is around 1.0, and a well run company to boot. Should have a similar market cap to ALK, (or a little less since they have 14 less airframes). Not a 1.4 billion market cap. Does not make sense.

It should be noted that I am biased, since I am an "owner"!

[Seeker]

I do not think the current Westjet share price is based on fundamentals but rather on the general pessimistic market sentiment. Many other solid companies are also being de-valued by the investment community - there's money to be made (if only I had some to spare I could find a dozen places to invest).

Stockhouse - Westjet

[ws pilot]

To a certain extent I agree. With the European problems that continue to persist(with no end in sight), obviously WJA is not immune to whatever market hardships there are. But $10.46? Analysts are talking up U.S. airline stocks. In the last three months, almost all standalone U.S. airline stocks are tracking in positive territory, the exceptions being LUV and LCC, who are trading at a very slight loss. As well, when considering the cliff that WJA has fallen off in the last three months (-23%), especially compared to the TSX composite as a whole(-5%), I believe it looks ripe for a rebound. The question is when? Is it a strong buy? At this time I am not unhappy that I'm buying, that's for sure.

P.S. Standalone Airline= non-regional airline

[Croc Dundee]

During the market crash of 2008/2009, WJA got down around the $8 mark. I think that is the low water mark for this stock, but I doubt it will get that low during this soon to be mini-recession.

[dagger]

It's undervalued because people are running towards safer investments with higher yields, like REITs.

But the public is getting whipsawed by the news. If there is a recession, fuel prices will fall and make up some or the loss of traffic or RASM.

Oil was down almost $5 a barrel today.

[Seeker]

But $10.46? Analysts are talking up U.S. airline stocks. In the last three months, almost all standalone U.S. airline stocks are tracking in positive territory, the exceptions being LUV and LCC, who are trading at a very slight loss. As well, when considering the cliff that WJA has fallen off in the last three months (-23%), especially compared to the TSX composite as a whole(-5%), I believe it looks ripe for a rebound. The question is when? Is it a strong buy? At this time I am not unhappy that I'm buying, that's for sure.

P.S. Standalone Airline= non-regional airline

You need to expand your scale a bit - look at a 3 year or 5 year chart. The share price is down quite a bit in the last few months but not as low as it has been, as Croc mentioned. I do however feel that it's undervalued. You are correct that the question you need to answer is; how for the re-bound, and should you be buying now or waiting for later to buy?

[ws pilot]

Hi Dagger,

I believe that you are correct, but are over-simplifying why WJA is down so much. As pointed out in my earlier post, it has dropped excessively compared to its U.S. counterparts. In fact, the U.S. airline stocks are going up, firstly because of the lowering of jet fuel (6.1% last month), and the Chapter 11 filing of AMR, which will further slash over-capacity in the short to medium term. While WJA is not affected by the latter, the former should help it up. It has not. Every day, a new 52 week stock price record is being achieved. Just not a record that any WJA investor wishes to be a part of!

Seeker,

I only used the last three months because this is where WJA really started to negatively deviate from the TSX composite in the recent past. Hence the reason for breaking it into such a small time span. As well, I used the P/E and P/B numbers from today's closing bell, as that was the info that I felt the original poster was looking for. As always, my opinion only.

You're absolutely correct that one could look at the trends over the last three years to see when there has been big pops on WJA. The only problem that I see with that is generally those pops seem to be associated with big news items eg. SWA codeshare or the dividend/share buyback being implemented.

Just looking at this stock from a pure cashflow, P/E, and P/B and ROIC POV, it should be doing much better than it is. It's seemingly at an all-time low purely from a numbers perspective, as far as I can tell.

[better4me]

WJA stock has dropped because management's statement that there will be no dividend or shre buy back program for the next little while. Compare this to Agrium (AGU.T) where they have quadruppled their generous dividend. Today AGU is a $70 stock, but before they paid dividends (or had a very meager dividend), it was perpetually a $20 stock.

Further stock market analysis reveals that there is no clear exit strategy for WJA while AGU could be bought up by the likes of Potash Corp of Saskatchewan, Mosiac, ADM, etc.

Ask youself two fundamental questions regarding WJA:

1. How do I as a stock broker see a return on my investment while still retaining my stock. If stock appreciation is the only method then I have to get another fool to believe the stock is worth more than I paid.

2. How do I as a stock broker get an accelerated return on investment with the potential for a hostile or friendly takeover? If there are no potential buyers for the going concern, the stock does not support a premium for hostile takeover potential.

Consider this scenario: buy $10 stock on AC and WJA in 1999. AC goes through the CP/Onex saga and the pay out was about $13 plus a share in the new AC. AC goes bankrupt and the stock is worthless, but I have all rweady made a 30% profit. WJA does a few stock splits, but unless I sold the stock, my return is is near 0% because there has only been one very meager dividend.

As to Alaska, same situation that have in the past paid out dividends. ALK might still do but I have not followed the stock to know for sure.

As to appreciation of WJA stock price, if they curtailed growth by two airframes per year and instead delivered a modest dividend, the stock would be worth $20-$30 range.

At the company I just joined (not in aviation field), the CEO held a fire side chat session with the head office emoloyees. First question asked was in regard to payment of dividends, would the company pay a dividend this comming year (dividends have not been paid on two years, but the company has turned around and will ost a small profit). The response back was to wait and see regarding the year end accounting adjustments. For the WJA folk at the next meeting with senior executive team, as them about dividend payout in addition to the profit sharing plan. Put Saretsky on the hot seat as the employee meetings are his largest shareholder/owner meet up.

[CanadaEH]

Do you have a source for WJA not handing out a dividend?

[Thebean]

If you'd purchased 1 share of WJA at the IPO price, it'd be worth about $34 today.

With well over $1b in cash on hand, representing the largest ratio of cash vs monthly expenses amongst North American airlines, I doubt they'll be a curtailment of the dividend program.

A rule of thumb for airline stocks is "buy in January, sell in May-June".

[jkavafian]

If you'd purchased 1 share of WJA at the IPO price, it'd be worth about $34 today.

With well over $1b in cash on hand, representing the largest ratio of cash vs monthly expenses, I doubt they'll be a curtailment of the dividend program.

A rule of thumb for airline stocks is "buy in January, sell in May-June.

I believe that you mean $1 invested is worth about $3.50 today.

1 share at IPO is now 3.38 shares today with the three three-for-two splits. At $10.50 per share today that's worth $35.44 vs. $10 in 1999.

[better4me]

If an investor bought 100 WJA-T shares on IPO they would have a cost base of $1000 at $10 IPO price.

As of today the investor still has cost base of $1000 but they also have 338 shares. The adjusted cost base per share has dropped to $2.96.

Today's stock price quote is $10.50. Fair Value of the WJA stock is $3544 but this an unrealized gain on investment.

Taking into account time value of money, assuming the individuals short term borrowing rate averages 7% over the last 12 years, the gain on sale drops to $292. The break even point (BELF) for the shares is $9.64 with interest costs included.

AS to Divident Policy, there was a comment in the Q3 earnings call that beyond December 30 2011 dividend payout, no further dividends were planned. The Board officially reviews the dividend payout program at every quarterly meeting. However some companies have a longer term view of dividend payouts so their policy is pay out dividends semi-annual or quarterly and the BoD only approves the amount of dividends.

The share buy back program (normal course issuer bid) has officially ended at WS and is not expected to be renewed.