WestJet Airlines Ltd.

WJA : TSX : C$30.15
HOLD 
Target: C$34.00

Disclosure : I fly westjet whenever possible – great service from Canada’s version of Southwest

COMPANY DESCRIPTION:
WestJet is Canada’s leading low-fare airline and is based
in Calgary, Alberta. WestJet employs about 6,600 full
time equivalent employees, and carries roughly 15
million guests to its 71 destinations across North
America and the Caribbean. WestJet is publicly traded on
the Toronto Stock Exchange under the symbols WJA and
WJA.a.
All amounts in C$ unless otherwise noted.

Transportation and Industrials — Airlines and Aerospace
Q3/14 PREVIEW: GOOD QUARTER EXPECTED
Maintaining HOLD
We are maintaining WJA at a HOLD due to the combination of moderate
implied return to our target and forecast uncertainty. We remain
uncertain about WJA’s RASM prospects (guidance of positive but lower
than Q2/14) and this could provide downside risk.
Good Q3/14 expected sales growth on margin expansion
We project a 38% increase in EPS for WJA in Q3/14 from better sales and
profitability from the company’s initiatives.
Key drivers should include further benefits from WJA’s Plus premium
economy, Encore regional and cost-cutting initiatives. In addition, we
expect a much less severe CAD/fuel headwind than in H1/14.
But, as noted above, WJA’s RASM picture remains fuzzy. There may be
downside risk to our Q3/14 EPS estimate due to RASM. We estimate each
1% reduction in RASM growth from our 3.1% forecast would result in a
$0.05 reduction in our Q3/14 EPS forecast.
Continue to use moderate valuation multiple
We continue to value WJA at a moderate 5.5x EV/NTM EBITDAR (5.5x
Q2/15E EV to Q3/15E – Q2/16E EBITDAR) valuation multiple. This
multiple is close to the industry valuation average and our $35.81 DCF
valuation.

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