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Investing.com -- Jefferies has upgraded Air Canada (TSX:AC) to Hold from Underperform, citing better-than-expected first-quarter execution and improved visibility into cost control and earnings stability. The investment bank also lifted its price target on the stock to C$18 from C$12, suggesting a more balanced risk-reward profile heading into 2025.

“We upgrade to Hold and C$18 PT at 4X EBITDA and 7.5X P/E,” analyst Sheila Kahyaoglu wrote in a report published Monday. “JEFe ’25 EBITDA of $3.48BB is near the top-end of the reduced $3.2–3.6BB guide and sits comfortably within the original $3.4–3.8BB range.”

Air Canada’s Q1 results topped expectations, despite trimming its 2025 EBITDA guidance by 6% to C$3.2–C$3.6 billion due to shifting demand and inflationary pressures. Jefferies’ 2025 EBITDA forecast of C$3.48 billion remains above the midpoint, reflecting confidence in management’s strategy and the positive effects of a C$150 million cost-reduction program.

The analyst noted that domestic and international bookings remain relatively stable despite weaker U.S. transborder demand, where bookings are down in the low teens for the next six months. Nonetheless, Air Canada reallocated capacity away from the U.S. and into other geographic areas, including ramping up its high-margin Atlantic routes and expanding service in the Pacific region.

Jefferies sees some limitations to Air Canada’s long-term operating leverage, pointing to structurally higher costs in Canada and significant capital expenditures through 2028. Still, Kahyaoglu stressed the importance of strategic flexibility, noting, “The diversified network (no single entity >1/3rd of ASMs) is a positive when demand signals change as rapidly as they have of late.”

Air Canada shares have rebounded more than 30% in recent months, trimming their year-to-date decline to around 15%. “Shares already logged 30%+ rally… but Q1 execution gives confidence in AC’s renewed guide,” Kahyaoglu wrote.

Jefferies’ shift in tone reflects broader investor sentiment that leans toward cautious optimism amid sector volatility. While Air Canada faces structural cost challenges and a complex macro backdrop, disciplined execution and network nimbleness are helping the company chart a more stable course for earnings and shareholder returns.

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