Wings Magazine

Bad forecast for Canadian transportation companies

Sept. 28, 2011, Montreal - Canada's major transportation companies are expected to face lower revenues and profits this year as they feel the pressure from a weakened global economic outlook, an industry analyst said Tuesday.

September 28, 2011  By The Canadian Press

Turan Quettawala of Scotia Capital downgraded his expectations for Air Canada's stock price and reduced his earnings estimates for several rail, aerospace, airline and trucking companies by an average of 15 per cent.

Although he has become more cautious, the analyst said he's not assuming a 2009-like recession. Scotiabank economists have predicted that if a recession does occur, it will likely be "shallow and short."

Even with a more pessimistic outlook, he said Canadian National Railway, Canadian Pacific Railway and Bombardier
represent good value because their shares have already adjusted.

Quettawala downgraded the country's largest carrier and upgraded its partner Chorus Aviation Inc..


Other analysts downgraded Air Canada much earlier.

Walter Spracklin of RBC Capital Markets did so in January, when the shares were double where they are currently trading and reduced his estimates on the weak macroeconomic outlook last month.

Quettawala believes Air Canada and WestJet Airlines will likely face lower profits even though lower yields have been partially offset so far by reduced costs and fuel prices.

Canada's railways are expected to face slower growth, but should be helped by a stronger Canadian gain crop, CN's continued move to an intermodal format, and slightly higher coal and potash volumes. CP also faces easier comparisons to last year.

Bombardier faces challenges from lower deliveries of all aircraft except its large Global business jets.

Earnings estimates in 2012 for trucking companies TransForce, Mullen Group and Contrans Group are expected to fall between three and 11 per cent.

All the transportation companies besides WestJet were up in Tuesday trading. Air Canada shares gained the most, rising more than six per cent to $1.39, followed by Bombardier, which was up 3.2 per cent at $4.16.


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