# Westjet



## Fain

Anyone else own Westjet stock. I bought myself some shares in the mad sell-off recently. Looks really undervalued


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## Ethan

First stock I ever owned, although I sold my shares in 2004. Great company in a terrible industry. Seems cheap now with a PE of 10.

Look for some big changes ahead as their new CEO is talking about abandoning the single plane approach by adding smaller planes that would service smaller centers, and possibly larger planes for longer haul international routes.


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## atrp2biz

I wouldn't touch airlines with a 10-foot pole. Just too much competition, costs are difficult to control and very little upside.


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## Uranium101

there is an old saying: how do you become a millionaire? Simple, just become a billionaire and invest in an airline.

Costs are too high, and the unions are pain in the neck. Worst of all, airlines that are going out of business does not go out of business. Courts let them continue to operate at a loss.

Didn't American Airline just went out of business?


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## DavidJD

You should check out EIF or Exchange Income Fund. They own a few airlines that are strong regionally in Canada (Perimeter Air, CalmAir, Bearskin Air) and some other manufacturing companies. The most recent aquisistion was Westeal, a company that makes cell phone towers and just won a .5Billion $ contract with AT&T. It is super professionally run, fantastic management, great dividend history (over 6% now) and its stock price is always bumping up its 52-week high. TDW has a couple of Holds, some Buys and a Strong Buy. It is the only aviation stock I would own. WJ, AC, and american carriers are just too sensitive to economic fluctuations and other wild influences.


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## underemployedactor

[Costs are too high, and the unions are pain in the neck. QUOTE]

Isn't that exactly what Gordon Gekko says in the first Wall Street movie?


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## Jungle

atrp2biz said:


> I wouldn't touch airlines with a 10-foot pole. Just too much competition, costs are difficult to control and very little upside.


Same here. Too cyclical for my liking. I don't think these companies are a good investment grade anymore. 

Just like they say on Dragon's den "I'm out"


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## Square Root

atrp2biz said:


> I wouldn't touch airlines with a 10-foot pole. Just too much competition, costs are difficult to control and very little upside.


Agree totally. Business model very weak with price competition and low barriers to entry.


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## Ethan

underemployedactor said:


> [Costs are too high, and the unions are pain in the neck. QUOTE]
> 
> Isn't that exactly what Gordon Gekko says in the first Wall Street movie?


Good old Bluestar airlines.

Speaking of which, does anyone have a Dad who's a union rep at WestJet?


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## DavidJD

sigh...what if the airline flies medicvac, freight, passengers to isolated communities? What if they operate a training school too? What if they tack on fuel charges as needed? What if they are highly profitable dishing out an increasing dividend?

How i suffer with airlines...14% yield (3 years) 115% gain in stock value...what will i do about these capital gains?


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## Jon202

FYI WestJet is non-unionized workforce. The pilots have a non-union association recognized by the airline.


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## Fain

Ethan said:


> First stock I ever owned, although I sold my shares in 2004. Great company in a terrible industry. Seems cheap now with a PE of 10.
> 
> Look for some big changes ahead as their new CEO is talking about abandoning the single plane approach by adding smaller planes that would service smaller centers, and possibly larger planes for longer haul international routes.


The P/E is what caught my eye also. Buy and Hold is never my strategy but was thinking i could load up for cheap until it returns to it's historical valuations that it normally trades at. 

586 shares at an average of $11.71 i'm at right now with hope that Q1 seasonal strength brings it back to $13-14ish range.


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## w0nger

airlines are never a good long term hold. I do own WJA... actually a significant amount... however i'm always in and out as soon as i can even with low profits... 5% here and there and the occasional loss. 

WestJet has a great business plan, great management and lots of potential, however like at other airline in the world, including the little guys... all it takes is one accident to lose everything....


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## m3s

It's not that hard for a smaller airline to buy a single modern efficient air frame (typically B737) and compete by selecting only the most profitable air routes. What sets Westjet apart imo is the management and profit sharing etc that makes for pleasant employees.. but just about any company ends up slashing all those extra niceties once the CEOs/stockholders want to start cashing in more profit

Check out RyanAir in Europe. I can fly anywhere in Europe for like €20 (average fare they claim is only €32). It's the cheapest mode of transport by a long shot. There are no reserved seats or gate agents, you must print your own pass, you pay extra to check baggage and they will try to sell you stuff on the plane. Similar to Westjet they only operate B737's which is more efficient in fuel/maint/training etc and they chose their destinations very very carefully (sometimes they land outside of town in a cheaper airport and bus you in etc) Unlike WestJet, they only fly point-to-point instead of the typical flying backwards to major airports (hub and spoke)

As far as accidents, it's been shown that cars are far more susceptible. I'm not really interested in investing in airlines because of the unforeseeable cost of fuel, and amount of discretionary air travel


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## Argonaut

Rule number one in investing is never lose money. 

Rule number two in investing is never buy an airline. This is synonymous with rule one.


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## Homerhomer

Wouldn't touch any airlines with a ten foot pole, especially for a long term hold. Suppliers would be my only option if I ever wanted to go there.


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## Betzy

DavidJD said:


> sigh...what if the airline flies medicvac, freight, passengers to isolated communities? What if they operate a training school too? What if they tack on fuel charges as needed? What if they are highly profitable dishing out an increasing dividend?
> 
> How i suffer with airlines...14% yield (3 years) 115% gain in stock value...what will i do about these capital gains?


So are talking EIF here or something else?? Cough it up David
I own TRZ.B but as a trade on seasonality.


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## DavidJD

Betzy said:


> So are talking EIF here or something else?? Cough it up David
> I own TRZ.B but as a trade on seasonality.


You're darn tooting it is EIF.

Give them a glimpse. I am long in this as they say. I used to tell myself, when it hits $20 I am going to reduce my position, then $25, now I am waiting for $30 like the analysts are predicting. I like that the airline business is a part of their overall ownership. The new Westower purchase and recently awarded contract is sweet. I expect them to have another announcement in spring of a new acquisition. I would have expected another airline (after the buying spree of CalmAir, and BearSkin) but don;t know what to expect - except that it will be a boost to the corporation. Management makes me drool.


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## JordoR

I had trouble trying to find a Westjet thread... and was equally confused that the last post was made in 2012....

Interested to discuss positions others may have in Westjet. It's up to an all-time high today and has enjoyed a nice 12% rise in the last 5 days. 
Last year it was a Moneysense All-star pick, and is still in the Top 200 for Moneysense for 2015 coming. 

It's been one of my longer holdings, and my average price is at 24 after having bought over the last few years. I've never really considered selling it since it was such a long term hold for me, but am seriously considering it now - does anybody have an exit prices in mind for Westjet if you own any?


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## beans

I'll bite:

My thoughts are: They just finished upping their rates to accommodate for the inflated fuel prices.... recently fuel prices aren't looking nearly as bad as they did (as i am sure we are all aware). My thoughts are that the lower fuel prices would be a positive over the next few quarters...until they adjust ticket prices accordingly??


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## Westerncanada

Really like Westjet as a company.. but the swings and risk are far too volatile for me to participate.


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## Nemo2

Guess I`ve seen too many airlines go under during my lifetime to have any interest in buying into one.

http://www.aviationexplorer.com/defunct_airlines_worldwide.htm


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## Crusher

Westerncanada said:


> Really like Westjet as a company.. but the swings and risk are far too volatile for me to participate.


Is westjet really this risky? Why? 
This has been one of my best performers in 2014, and I still think it's a buy. For an airline, it has very consistent results and a strong balance sheet.

I don't like airlines as a business because of how capital intensive they are and how small margins are, but wja always seems to have good results


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## Nordic

I don't find Westjet to be risky at all.
I just purchased options today (adding to my equity holdings) as I feel it should pop on the next earnings report (early Feb). Westjet does not hedge fuel expense so it will get full benefit of the drop in oil over the past few months, as well as reflect the increase in income from the new checked baggage fee. Also look for the company to increase its dividend very soon. 
IMO the main reason it's dropped over the past week is because of institutional investors pulling money out of airlines to ride the energy sector rebound. 
Looking for >$35 in Feb. (Break-even on my options play is 34.80 with a Feb 20th expiry).


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## faline

>35$ in Feb - that would be nice!


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## Nordic

faline said:


> >35$ in Feb - that would be nice!


They report earnings on Feb 3rd; hoping for a big bump (certainly need it to get my options back in the money).


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## JordoR

Great Q4 for Westjet, and can't complain about a 17% increase in the dividend!
I'm happy to have a long term holding in this company.


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## Nordic

JordoR said:


> Great Q4 for Westjet, and can't complain about a 17% increase in the dividend!
> I'm happy to have a long term holding in this company.


And of course it trades down because everyone and their mother wants to free up cash to put into energy stocks. Annoying!


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## Jungle

Sentiment is weird on this one right now, so you just have to be patient. 

Market liked low oil prices, it pushed stock price up. 
Then market noticed WJ buys fuel in US dollars when CAD is tanking. 
Then market was selling because it feared low oil would cause downward trend in economic activity, less flying, etc. 

I ended up buying this one in 2013 and it took a while to get some traction. However WJ still under performing some of the US airliners I bought during the same time and have posted some impressive returns.


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## Nordic

$3 million worth of shares purchased by company insider(s) today. I purchased another 300 shares myself yesterday. No idea why the shares have been languishing around $31 for the past two weeks. My options play isn't looking like it's going to expire in the money on the 20th, but I'm happy to load up on shares in my TFSA.


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## GGO

Wonder what are your thoughts on this one as it has been sliding downward lately. Maybe profit taking with run-up for past year ? Thanks


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## arc

will AC outperform WJA?


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## OnlyMyOpinion

arc said:


> will AC outperform WJA?


You do ask in terms of share price performance - not customer service, right?


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## Nordic

A quick little analysis for the board here:

Westjet's share price is looking pretty absurd lately. 
When you look at share price to net earnings per share ratios of the 250 stocks on the TSX Composite Index, Westjet is now the 11th most undervalued, with a Price/Earnings ratio of just over 9 (it historically trades at a PE of around 12; Air Canada's is 27.8 right now, and Southwest Airlines' is 15.6). The reason I bring Southwest in for comparison is because it is the most similar North American airline to Westjet, after AC.

If people would pay the same 'price' (compared to a company's earnings) for Westjet shares as they do for Southwest Airlines, Westjet would currently be trading at about $40 (which is around what most investment firms had set as a one-year price target, 6 months ago). If people would pay the same 'price' for Westjet shares as they historically do (a P/E ratio of about 12), Westjet would be currently sitting at about $31 per share, which is what it floated around 6-8 months ago.

Price to Book ratio
At current share prices:
For every dollar of the net assets in Southwest, you have to pay $3.275 in share price.
For every dollar of the net assets in Westjet, you have to pay $1.852 in share price.
For every dollar of the net debt in Air Canada (the company does not have net assets) you have to pay $2.96 (you are paying this premium for shares in expectation of high earnings that turn the net debt on the company's books into net assets).

It's very bizarre that Westjet has dropped so far, from a business valuation viewpoint. 

Westjet is covered by 15 different analysts from major North American investment banks. As of today, two rate it a Strong Buy, ten rate it a Buy, and two rate it a Hold. Their average target (estimated) price for the stock 12 months from now is $34.41. That is an estimated 45.2% one-year return.


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## besmartrich

I averaged down on this a couple of days ago. Such a great company that is severely undervalued. This is a steal in my opinion.


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## Nordic

I think it just got caught in downward momentum and all the retail investors got shook out. The diluted earnings per share over the last 5 quarters are as follows:
2015-03,	2014-12,	2014-09,	2014-06,	2014-03
1.09 - 0.70 - 0.40 - 0.40 - 0.69

The stock went from $25 to $35 from early 2014 until the end of the year; then it began a downward slide from Jan til now, even as they reported a record quarter.
Bizarre.


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## gardner

The share price performance of CHR.B for the last year has beaten WJA and it yields 7.5% -- if you want an airline. Personally, I don't like airlines all that much.


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## besmartrich

gardner said:


> The share price performance of CHR.B for the last year has beaten WJA and it yields 7.5% -- if you want an airline. Personally, I don't like airlines all that much.


I don't like airlines much either but Westjet and Southwest are exceptions.


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## CPA Candidate

Nordic said:


> A quick little analysis for the board here:
> 
> Westjet's share price is looking pretty absurd lately.
> When you look at share price to net earnings per share ratios of the 250 stocks on the TSX Composite Index, Westjet is now the 11th most undervalued, with a Price/Earnings ratio of just over 9 (it historically trades at a PE of around 12; Air Canada's is 27.8 right now, and Southwest Airlines' is 15.6). The reason I bring Southwest in for comparison is because it is the most similar North American airline to Westjet, after AC.
> 
> If people would pay the same 'price' (compared to a company's earnings) for Westjet shares as they do for Southwest Airlines, Westjet would currently be trading at about $40 (which is around what most investment firms had set as a one-year price target, 6 months ago). If people would pay the same 'price' for Westjet shares as they historically do (a P/E ratio of about 12), Westjet would be currently sitting at about $31 per share, which is what it floated around 6-8 months ago.
> 
> Price to Book ratio
> At current share prices:
> For every dollar of the net assets in Southwest, you have to pay $3.275 in share price.
> For every dollar of the net assets in Westjet, you have to pay $1.852 in share price.
> For every dollar of the net debt in Air Canada (the company does not have net assets) you have to pay $2.96 (you are paying this premium for shares in expectation of high earnings that turn the net debt on the company's books into net assets).
> 
> It's very bizarre that Westjet has dropped so far, from a business valuation viewpoint.
> 
> Westjet is covered by 15 different analysts from major North American investment banks. As of today, two rate it a Strong Buy, ten rate it a Buy, and two rate it a Hold. Their average target (estimated) price for the stock 12 months from now is $34.41. That is an estimated 45.2% one-year return.


I'm come to a similar conclusion myself, it is quite undervalued, trading at 2013 levels but earning more and having a greater book value. When oil prices were dropping in the fall of last year everyone loved WJA, and now that they have settled quite low and the profits are coming through, the stock gets sold down. I understand their have been a few more empty seats, but the changes seems rather insignificant in light of other positives.

My observation lately is that when a stock suffers any setback or bad news, no matter how relatively small, the market beats it into the dirt, like it's personal or something.

Air Canada has been, and still is, a street darling since the latter part of 2013 while WJA has turned into the whipping post.


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## besmartrich

CPA Candidate said:


> I'm come to a similar conclusion myself, it is quite undervalued, trading at 2013 levels but earning more and having a greater book value. When oil prices were dropping in the fall of last year everyone loved WJA, and now that they have settled quite low and the profits are coming through, the stock gets sold down. I understand their have been a few more empty seats, but the changes seems rather insignificant in light of other positives.
> 
> My observation lately is that when a stock suffers any setback or bad news, no matter how relatively small, the market beats it into the dirt, like it's personal or something.
> 
> Air Canada has been, and still is, a street darling since the latter part of 2013 while WJA has turned into the whipping post.


I completely agree with you. WJA is very undervalued at this time. Good for value investors~


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## celishave

I think you guys are severely undervaluing the number of butts moved to Fort Mac by Westjet from all over Canada. There has been a severe dent in that business, never mind the impact of less cash floating around in Alberta where it was not uncommon to see people go to Vegas 3 or 4 times a year "just because". That's not happening anymore.


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## Nordic

celishave said:


> I think you guys are severely undervaluing the number of butts moved to Fort Mac by Westjet from all over Canada. There has been a severe dent in that business, never mind the impact of less cash floating around in Alberta where it was not uncommon to see people go to Vegas 3 or 4 times a year "just because". That's not happening anymore.


That's more than offset by the decline in the price of jet fuel, which is a third of Westjet's operating cost; Load Factors are down by less than a couple percentage points. This is why last quarter was the best on record, and this upcoming one will be good as well.


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## Rhaegar

Am I the only one who sees a potential technical buy around $23?


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## Nordic

Rhaegar said:


> Am I the only one who sees a potential technical buy around $23?


Uhhhh....read the last page and a half of posts dude....


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## Rhaegar

Nordic said:


> Uhhhh....read the last page and a half of posts dude....


Yes lots of people thinks its a good value at this level. I'm asking if anyone agrees with me that 23 (22.91 as I type this) is a strong technical analysis based buy point.

I see previous bounces at this level, and I also see a bit of a head and shoulders retracement with a 35 high, 29 neckline, implying a fall to 23.


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## Nordic

Rhaegar said:


> Yes lots of people thinks its a good value at this level. I'm asking if anyone agrees with me that 23 (22.91 as I type this) is a strong technical analysis based buy point.
> 
> I see previous bounces at this level, and I also see a bit of a head and shoulders retracement with a 35 high, 29 neckline, implying a fall to 23.


Fundamental, technical, it's a buy any way you look at it. I think most people would just rather look at the fundamentals and ignore technical, as shareprice often ends up not following technical trends (WJA should have been a buy at 29).


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## CPA Candidate

This is the 7th consecutive day of decline in the stock price. The stock has declined 31% this year while fuel costs have plummeted and the company has guided Q2 2015 as the best quarter in the company's history. This is a hated stock right now which I find quite exciting.


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## Rhaegar

Nordic said:


> Fundamental, technical, it's a buy any way you look at it. I think most people would just rather look at the fundamentals and ignore technical, as shareprice often ends up not following technical trends (WJA should have been a buy at 29).


Well yes technicals aren't always right. It should have been a buy at 29, should have been at 26 too. If it isn't at 23 it should be at 20, etc.

When fundamentals and technicals are both screaming buys though, that's very interesting.


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## Nordic

Rhaegar said:


> Well yes technicals aren't always right. It should have been a buy at 29, should have been at 26 too. If it isn't at 23 it should be at 20, etc.
> 
> When fundamentals and technicals are both screaming buys though, that's very interesting.


I certainly agree with you there! 
Also, I used to trade WestJet based on the technical trends in particular. That strategy certainly went out the window over the past 8 months however :S


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## Rhaegar

Sliced right through 23, next support is ~19-20 probably. Below that... who knows.

At this rate it could be testing that even before earnings


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## jargey3000

$21.23 today.... time to board? hep me out here?


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## FrugalTrader

Could the downward pressure be due to potential unions forming?


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## Rhaegar

jargey3000 said:


> $21.23 today.... time to board? hep me out here?


Support isn't till at least $20 (see week end of July beginning of august 2013)


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## Nordic

A Price/Earnings ratio of 8.21 right now; absolutely laughable.


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## jargey3000

Nordic:"A Price/Earnings ratio of 8.21 right now; absolutely laughable." Forgive my ignorance; please explain?


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## Nordic

jargey3000 said:


> Nordic:"A Price/Earnings ratio of 8.21 right now; absolutely laughable." Forgive my ignorance; please explain?


The comparison of _the price of one share_ *vs *_the net income over the past year per share_. 
Southwest's is in the high teens, Air Canada's is in the high 20s, and Westjet's is currently less than 9, which is just crazy. It should be at least 12-13, which would reflect a share price of 31ish. Watch the next earnings be another record, which will push the P/E ratio even lower and more absurd if the shareprice doesn't move up significantly.


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## jargey3000

Gotcha, thanks! Sooo... what's dragging the price down?


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## CPA Candidate

jargey3000 said:


> Gotcha, thanks! Sooo... what's dragging the price down?


Some operating metrics associated with capacity utilization declined slightly, the market responded sensibly and destroyed the stock.


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## Nordic

New financial results show a 19% rise in profit from Q2 a year ago....and the stock drops 1.2%, lol.
So stupid.


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## jargey3000

Why the drop? (currently showing $22.18, down 2.16%. Numbers look good (to me). They've increased the no. of shares for buy-back (gen. good for stock price?). Is it the union thing?Where's the price heading?


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## JordoR

Notable stats from the report look pretty good:

- Ancillary revenue per guest increased 66.7% to $16.74
- Operating profit increased 28% to $100.39 million
- Operating margin expanded 230 basis points to 10.7%
- Earnings before income tax increased 24.7% to $88.89 million
- Net cash provided by operating activities increased 11.7% to $129.04 million
- Return on invested capital improved 20 basis points to an all-time high 16%
- Revenue per available seat mile decreased 5.7% to 14.16 cents
- Cost per available seat mile decreased 8.1% to 12.65 cents
- Load factor contracted 150 basis points to 78.1%
- Fleet size increased 7.5% to 129


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## CPA Candidate

WJA *only* increased EPS per share in the first half of the year by 45% during which time the stock decreased by some 30%. How hated is this stock right now?

It only proves my hypothesis that sentiment (fear) is stronger than facts. Why consider facts when you can panic sell? There's no fun in that.


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## Nordic

I'm just glad management was smart enough to get approval to *double* the amount of the open-market share buyback over the next 10 months; this essentially increases the steadfast shareholders' percentage ownership at a huge discount by buying cheap shares from those stupid enough to sell at these valuation levels.

When the market catches on and starts plowing money back into WJ like it did in 2nd half of 2014, WJ is gonna jump like crazy. 
I'll go ahead and predict a 70% return ($37-38 share price) in 18 months from today's share price.


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## besmartrich

CPA Candidate said:


> WJA *only* increased EPS per share in the first half of the year by 45% during which time the stock decreased by some 30%. How hated is this stock right now?
> 
> It only proves my hypothesis that sentiment (fear) is stronger than facts. Why consider facts when you can panic sell? There's no fun in that.


Well said. I totally agree with you. This stock is hated even when showing stronger results. Well I may need to buy more of this solid company.


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## jargey3000

Nordic: Now we're talkin' ! "Final call. All passengers should now be on board." You better be right!


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## jargey3000

Closed today at $21.83 (down 3.71%) TSX up 76pts +.54%. WJA...WTF????


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## Nordic

Almost comical, isn't it.
I wish I had 30K sitting around to throw into it right now; the market can't act insane forever.


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## jargey3000

notice AC is down over 2% too......just thought of something. Maybe the thinking is: Cdn. $ down, people won't be traveling as much... ditch the airline stocks. Waddaya think?
(ps ...sitting on 30k + right now... should I ?...)


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## Nordic

People dump their airline shares for a myriad of reasons that have no real bearing on the company's profits; it's a bunch of market noise for the most part. To be blunt, the market can be incredibly nonsensical, and people will sell simply because a stock has been dropping, and they fear a continuation of that, regardless of how well the company itself is doing.
Invest in the company, not the stock! WestJet's financial results prove it to be a profit-generating company. I want ownership in that business.


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## Nordic

jargey3000 said:


> Nordic: Now we're talkin' ! "Final call. All passengers should now be on board." You better be right!


I sure hope you got in yesterday


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## jargey3000

woulda, coulda, shoulda ..... I missed my flight! story of my life...


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## CPA Candidate

The pilots rejected forming a union in a vote today.


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## Nordic

CPA Candidate said:


> The pilots rejected forming a union in a vote today.


The nonsensical market will likely reward the shareprice tomorrow, even though unionization wouldn't really be a big deal IMO. Air Canada has unionized pilots and its done great the last couple years.


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## HaroldCrump

Nordic said:


> Air Canada has unionized pilots and its done great the last couple years.


After going through years and years of pain, near-bankruptcy, suffering stock prices, multiple govt. (taxpayer) bailouts, pension holidays, etc.
The past always looks great because it is no longer here.


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## Nordic

jargey3000 said:


> woulda, coulda, shoulda ..... I missed my flight! story of my life...


You'd be up 6.5% over the past week! :frown:


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## jerryhung

In comparison

AC is +6% today!!
or +10% in last 5 days, but -2% last 30 days, so it's all relative 
https://www.google.ca/finance?q=TSE:AC


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## Nordic

Man WestJet's just killing it lately. Seems the market has smartened up finally.


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## JP*

WJA currently Trading at 25.11. Ex-Div date is still about 4 weeks out. I am still down on it as I bought at 28.xx but it is oddly the only stock I follow that is trading up today from yesterday.


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## gardner

Chorus Aviation (CHR.B) is beating both of them over the last 5 days, and it yields 7.5%


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## JordoR

Yeah Chrous is one I wish I would have jumped on back in December/January when I was looking.. still I'm happy with the outlook for WJA


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## Nordic

I see Westjet made a $5.4 Million buyback at the end of July with the shareprice at $23. 
Looks like they bought up another $2.8 Million yesterday:
http://www.tmxmoney.com/TMX/HttpController?GetPage=InsiderTradeMarker&Language=en

These are like shadow-dividends that are DRIPed, for shareholders who continue to hold. Very nice to see.


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## Nordic

Nordic said:


> I see Westjet made a $5.4 Million buyback at the end of July with the shareprice at $23.
> Looks like they bought up another $2.8 Million yesterday:
> http://www.tmxmoney.com/TMX/HttpController?GetPage=InsiderTradeMarker&Language=en
> 
> These are like shadow-dividends that are DRIPed, for shareholders who continue to hold. Very nice to see.


Yet another $2.8M of equity purchased yesterday. http://www.tmxmoney.com/TMX/HttpController?GetPage=InsiderTradeMarker&Language=en

The people selling shares at these levels don't realize much of it is being purchased back by the company at a huge discount considering its ultra-low P/E. As a shareholder who continues to hold I'm loving this. $11M of share buybacks in one month = .3% unseen dividend to shareholders reinvested into the company at a heavily discounted shareprice.


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## Nordic

And ANOTHER $2.8M today. That's $8.4 Million (about .28% of the company's market cap) of share buybacks in the last *three* days.


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## besmartrich

Lots of share buybacks which is great signal to invest in. If insiders that know themselves more than anyone, are buying then why not us?


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## intel1

*Insider buybacks data*



Nordic said:


> I see Westjet made a $5.4 Million buyback at the end of July with the shareprice at $23.
> Looks like they bought up another $2.8 Million yesterday:
> http://www.tmxmoney.com/TMX/HttpController?GetPage=InsiderTradeMarker&Language=en
> 
> These are like shadow-dividends that are DRIPed, for shareholders who continue to hold. Very nice to see.


hi there,

Am newbie to the investing world. Where do I go to see any daily or historical insider buybacks for any stocks?

Thanks for your help!


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## intel1

*Bump*

bump


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## HaroldCrump

besmartrich said:


> Lots of share buybacks which is great signal to invest in. If insiders that know themselves more than anyone, are buying then why not us?


They borrowing money QoQ to buyback shares - a very common "trick" in use since 2011 & later.
In last 1.5 yrs. they have doubled their L/T debt to buyback shares

Right most column below is Q1 2014 and leftmost is Q2 2015.


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## Nordic

HaroldCrump said:


> They borrowing money QoQ to buyback shares - a very common "trick" in use since 2011 & later.
> In last 1.5 yrs. they have doubled their L/T debt to buyback shares
> 
> Right most column below is Q1 2014 and leftmost is Q2 2015.


The LT debt is for the purchase of 767's for their new long-haul routes. And as an investor I don't mind a company doing buybacks instead of paying off debt when the shares have a P/E of less than 9.


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## HaroldCrump

They issued new equity in 2015 Q1. Then turned around in Q2 and started buying back.
The cash for buybacks has to come from somewhere - why buy back shares if you need double the amount of debt to buy new fixed assets (like new aircraft).
Increasing debt, issuing new equity, buying new assets to grow the business, and then turning around to buy back shares seems financial engineering.


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## Nordic

HaroldCrump said:


> They issued new equity in 2015 Q1. Then turned around in Q2 and started buying back.
> The cash for buybacks has to come from somewhere - why buy back shares if you need double the amount of debt to buy new fixed assets (like new aircraft).
> Increasing debt, issuing new equity, buying new assets to grow the business, and then turning around to buy back shares seems financial engineering.


I didn't know they issued equity in Q1; could that have been for insiders though (stock options, employee equity plan)? Regardless, in Q1 the stock was trading around $30 for a PE of around 12, while it's now trading between $23-25 for a PE of about 9; it's still quite prudent management to be buying back at this PE.


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## HaroldCrump

They increased the equity base by 13.5% between '14 Q4 and '15 Q1, so it is not just regular insider buying - it is clear they need money (probably for expansion, as you said above).
I am simply saying the stock buybacks are likely to be financial engineering to support the falling stock price since Q4 of last year.
And yes I agree if management is determined to buyback stock, better to do it at 9 P/E rather than at 12.


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## Nordic

HaroldCrump said:


> They increased the equity base by 13.5% between '14 Q4 and '15 Q1, so it is not just regular insider buying - it is clear they need money (probably for expansion, as you said above).
> I am simply saying the stock buybacks are likely to be financial engineering to support the falling stock price since Q4 of last year.
> And yes I agree if management is determined to buyback stock, better to do it at 9 P/E rather than at 12.


I generally consider increased buybacks to be financial engineering if they coincide with a falling stockprice in-line with falling profits; in such a case it is indeed an attempt to prop up the shares. WestJet's stockprice has fallen while its profits have increased 45% (first half 2015 vs prev year). A prudent Board would buy-back as much as possible in such a situation, as the market has effectively set the shares at bargain prices (mainly because WJ has been lumped in with the rest of the Western-based companies).


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## CPA Candidate

HaroldCrump said:


> They increased the equity base by 13.5% between '14 Q4 and '15 Q1, so it is not just regular insider buying - it is clear they need money (probably for expansion, as you said above).
> I am simply saying the stock buybacks are likely to be financial engineering to support the falling stock price since Q4 of last year.
> And yes I agree if management is determined to buyback stock, better to do it at 9 P/E rather than at 12.


WestJet did not issue equity to the public during 2014 or 2015 nor did the share count increase. Your source of information is wrong.

From Note #9 June 30, 2015 (Q2 financials)

_"At June 30, 2015, the number of common voting shares outstanding was 106,765,489 (December 31, 2014 – 107,998,929) and the number of variable voting shares was 18,488,182 (December 31, 2014 – 19,691,939)."_



The actual number of shares outstanding at June 30, 2015 is 125 million. Even when the effect of potential dilution is taken into account, there are 127 million shares outstanding.


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## HaroldCrump

Source of data is MSN.
They say their data source is Morningstar


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## CPA Candidate

Blockbuster Q3 earnings out of WJA, Q3 2015 earnings up 95% over Q3 2014 figures and 57% YTD, above estimates. And while this quarter was occurring, the stock sank to 52 week lows in July. Someday, someone will have to sit me down and explain how market efficiency can explain all this, until then I believe in mispriced securities.


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## Nordic

CPA Candidate said:


> Blockbuster Q3 earnings out of WJA, Q3 2015 earnings up 95% over Q3 2014 figures and 57% YTD, above estimates. And while this quarter was occurring, the stock sank to 52 week lows in July. Someday, someone will have to sit me down and explain how market efficiency can explain all this, until then I believe in mispriced securities.


Down 2.6% right now after beating analyst expectations by almost 10% and posting record results yet again. This is the most ridiculously mispriced company on the TSX, with a P/E back in the 8's now. I just scratch my head; the market is stupid.


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## CPA Candidate

Nordic said:


> Down 2.6% right now after beating analyst expectations by almost 10% and posting record results yet again. This is the most ridiculously mispriced company on the TSX, with a P/E back in the 8's now. I just scratch my head; the market is stupid.


When negative sentiment clashes with positive actual results, negative sentiments win.

The market worried about excess capacity, which is real, but margin expansion due to lower operating costs has more than offset it making it a mute point. Market goes "meh".

The market worried about a union forming, it didn't. Market goes "meh".

In all seriousness, if the market won't award a proper valuation it's a waste of money to continue buying back stock. Increase the dividend instead.


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## thepitchedlink

It is extremely odd.....just not sure I want to own much more airline stock.....but I agree, the market is stupid


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## Nordic

CPA Candidate said:


> When negative sentiment clashes with positive actual results, negative sentiments win.
> 
> The market worried about excess capacity, which is real, but margin expansion due to lower operating costs has more than offset it making it a mute point. Market goes "meh".
> 
> The market worried about a union forming, it didn't. Market goes "meh".
> 
> In all seriousness, if the market won't award a proper valuation it's a waste of money to continue buying back stock. Increase the dividend instead.


After multiple quarters of increasing net income and record results, these cliché "capacity fears" that get brought up by analysts and BNN are making me increasingly frustrated. Who cares what their capacity plans are if they continue to make money hand over fist? I swear, analysts focus on RASM, CASM, Capacity crap just so they have something to "analyze" and sound like they're doing something. 

I agree that management should significantly increase the dividend to reward shareholders; since the market is willing to price the stock at a bargain p/e in the 8s, buybacks don't seem to be creating any value.


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## Jungle

This so undervalued and the company is performing quite well, I would expect it to take more time for the market to come around back to $30-35 share. 
I did sell out, but not for any reason against the company, just changed strategy to new protfolio.


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## Franky Jr

I hold this stock and I too think it's undervalued. Mr. Market can be really slow to come around to the true value. They have a dividend policy, I don't expect much more than a 15% increase next dividend payment but keep in mind it's a capital intensive airline. I expect them to grow the overseas B767 business either through more B767's, or more likely, brand new modern wide body aircraft (think B787). 
i.e.)787's are listed north of 200M, airlines typically get large discount's but either way if WestJet goes that direction it is a ton of $$.


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## besmartrich

My BV for the stock is $6K but right now it is at 5.3K. What a bargain that market keeps ignoring. :neglected:


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## thepitchedlink

wow, just keeps getting kick down the steps.....wish I had more $ to buy more:biggrin:


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## Nordic

A P/E of 6.56....the people selling at these levels are absolute idiots.


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## Jungle

Could be tax loss selling but I agree- this one makes no sense. Seems very undervalued and over punished.


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## CPA Candidate

I've recently done at lot of flying and prefer WestJet service, they are just a better company with a better culture. Most Air Canada employees act annoyed that they have to serve you, and Westjet staff and friendly and cheerful. It only heightened my regard for the investment.

The ROC/ROE vs the company's valuation against book (1.3x) make no sense. Imagine earning a 21% ROE and only being valuated at 1.3x each dollar of equity. Meanwhile the company raises the dividend annually and has been reduced the outstanding share count. The market is pricing in disaster.


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## Twixer

Three ultra low cost carriers are coming to the market. One is founded by WestJet's co-founder. And exchange rate works against them too. While exchange rate can turn quickly, the treat of new competition will press stock price for much longer time.


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## besmartrich

Twixer said:


> Three ultra low cost carriers are coming to the market. One is founded by WestJet's co-founder. And exchange rate works against them too. While exchange rate can turn quickly, the treat of new competition will press stock price for much longer time.


The feasibility tests will take a while and growing brands and customer base will also take some time. Westjet is a cash generating machine (although their capital expenditures in last 3 years been very high) and the market will eventually catch up.


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## Twixer

besmartrich said:


> The feasibility tests will take a while and growing brands and customer base will also take some time. Westjet is a cash generating machine (although their capital expenditures in last 3 years been very high) and the market will eventually catch up.


Flying in Canada is much more expensive than in other developed countries so more competition is inevitable. If they set prices like their European counterparts, they will quickly gain market share.


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## thepitchedlink

oh I wish I had more cash on hand!!!


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## avrex

Ya, I bought this stock at the end of 2015.
I'm down 12% in 2.5 weeks.

I still like this stock.


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## thepitchedlink

bought a bit more this AM


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## avrex

<thumbs up>


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## CPA Candidate

New Leaf airlines, a new discount carrier, just refunded all tickets and delayed plans to fly because they don't have a carrier license to operate.

http://www.cbc.ca/news/business/newleaf-transport-canada-1.3409142

Events like this will shake the public's confidence in new carriers. I had a friend many years ago that took a weekend trip to Toronto from a discount carrier, and it went bankrupt before he returned and had to get home on another airline. In the end, hardly a discount.

Moreover, WJ said they will match all New Leaf prices but won't charge for carry on, so it will be ultimately still cheaper to fly WJ and you get an established, quality airline.


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## thepitchedlink

New low today...love it:biggrin:


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## CPA Candidate

I got a fill of $16.50 today. Book value is about $15.75 per share.


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## Ethan

Holy pessimism batman! Shares are down 45% over the past year even though diluted EPS increased 31%. Price/earnings is now 5.7x. Market cap of $2.05 billion vs. book value of $1.95 billion. These guys are being treated like an oil company struggling to stay afloat.


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## Ethan

WestJet has a market cap of $2.05 billion. Compare that to 2015 earnings of $368 million, and cash/cash equivalents of $1.18 billion, the market cap seems a little low.


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## treva84

Ethan said:


> Holy pessimism batman! Shares are down 45% over the past year even though diluted EPS increased 31%. Price/earnings is now 5.7x. Market cap of $2.05 billion vs. book value of $1.95 billion. These guys are being treated like an oil company struggling to stay afloat.


Yes, it's crazy how undervalued it is in my opinion. I bought in on Friday and I wish I waited, but oh well hind sight is 20/20. The short term may be turbulent (zing) but this stock has a huge margin of safety built in. I think it's going to be a great long term hold.


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## CPA Candidate

Ethan said:


> Holy pessimism batman! Shares are down 45% over the past year even though diluted EPS increased 31%. Price/earnings is now 5.7x. Market cap of $2.05 billion vs. book value of $1.95 billion. These guys are being treated like an oil company struggling to stay afloat.


I gave up trying to understand the market. There is no news or result that could make it go up right now.

All I know is this is the cheapest the shares have been in almost four years and in a "bad quarter" they made 51 cents a share for an implied P/E of about 8, pay about a 3.4% dividend, have a high teen ROE and they trade for little more than the equity value. Eventually, the Canadian economy will rebound and the extreme pessimism will past, as it always does.

Buy from pessimists, sell to optimists.


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## thepitchedlink

Ahhh!!! under 16$ for a bit this AM....wished I'd watched that


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## Mechanic

I missed the sub $16 but got a partial fill @ $16.10 today


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## atrp2biz

I don't understand the focus on book value. To me, book value is a meaningless number. There's a fundamental principal/agent issue wrt asset impairment which is why the market should move in advance of such impairment and adjustment to BV.


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## besmartrich

CPA Candidate said:


> I gave up trying to understand the market. There is no news or result that could make it go up right now.
> 
> All I know is this is the cheapest the shares have been in almost four years and in a "bad quarter" they made 51 cents a share for an implied P/E of about 8, pay about a 3.4% dividend, have a high teen ROE and they trade for little more than the equity value. Eventually, the Canadian economy will rebound and the extreme pessimism will past, as it always does.
> 
> Buy from pessimists, sell to optimists.


I am totally with you. This is beyond absurdity. I cannot comprehend what the heck is going on with this stock. I will pick up more soon.


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## lost in space

besmartrich said:


> I am totally with you. This is beyond absurdity. I cannot comprehend what the heck is going on with this stock. I will pick up more soon.


Have to agree it is very odd, a quick check over at Fastgraphs (screen shot attached) shows this stock is massively undervalued. Don't know enough about Airlines to feel comfortable with buying but will keep an eye on it. BTW Air Canada is also massively undervalued as well.


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## Mechanic

Sale on again today. Picked up some more @ 16.05.


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## besmartrich

Mechanic said:


> Sale on again today. Picked up some more @ 16.05.


I see so many sales lately in Canadian market and one of the biggest is this one. Have bought at around $25 and I am thinking to average down a bit. Maybe I am catching the falling knives. Where the heck is bottom for this one?


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## Pluto

If one is a trader, by all means, trade airlines. If you see yourself as a long term investor, forget it - airlines are among the worst. Better off with a airplane manufacturer like Boeing.


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## thepitchedlink

wow does the market hate this stock.....


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## Rhaegar

I don't really see any solid support levels until the $10-12 range. Down she goes.


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## peterk

In @ $14.79


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## celishave

thepitchedlink said:


> wow does the market hate this stock.....


What's to like? They are cancelling many routes in Western Canada due to the oil plunge. They moved an enormous amount of workers in and out of Fort Mac. Recent interview of CEO indicated big job cuts coming soon. This drop is telling you something


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## Ethan

celishave said:


> What's to like? They are cancelling many routes in Western Canada due to the oil plunge. They moved an enormous amount of workers in and out of Fort Mac. Recent interview of CEO indicated big job cuts coming soon. This drop is telling you something


What's to like? How about record profits in 2015, or a PE ratio of 5, or shares trading below book value?


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## Ethan

atrp2biz said:


> I don't understand the focus on book value. To me, book value is a meaningless number. There's a fundamental principal/agent issue wrt asset impairment which is why the market should move in advance of such impairment and adjustment to BV.


Are you suggesting the fall in share price means Westjets assets are likely impaired? WestJet recently announced record annual profits, what makes you think their assets are impaired?


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## atrp2biz

No--I was speaking in generalities. However, from a WJA standpoint, capex has been substantial recently. A couple of things that stand out. 

1) Cash flow from investing activities is 3x D&A.
2) Net CF excl. financing activities was -$89 million in 2014 and $53 million in 2015 (compared to earnings of $284 million and $368 million).

Therefore, book value (influenced by capex) and earnings are not the best indicator of performance for capital intensive industries (just my personal belief).

As an investor, I want the companies I invest in to generate cash--not just accounting earnings.


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## Ethan

atrp2biz said:


> No--I was speaking in generalities. However, from a WJA standpoint, capex has been substantial recently. A couple of things that stand out.
> 
> 1) Cash flow from investing activities is 3x D&A.
> 2) Net CF excl. financing activities was -$89 million in 2014 and $53 million in 2015 (compared to earnings of $284 million and $368 million).
> 
> Therefore, book value (influenced by capex) and earnings are not the best indicator of performance for capital intensive industries (just my personal belief).


Capex has no impact on book value. The journal entry for capex increases PPE and decreases cash, both of which are assets, so book value is unchanged.



> As an investor, I want the companies I invest in to generate cash--not just accounting earnings.


Capex was greater than depreciation because WestJet grew the business. In the last 3 years, not only has WestJet grown their 737 fleet, they also purchased 4 Boeing 767's and started a subsidiary airline with 24 brand new Q400's. Of course their capex has been high, as it was planned to be. That their total capex was high in 2015 says little about their ability to generate cash.

When assessing a corporations free cash flow, most analysts deduct maintenance capital (ie not growth capital) from operating cash flows because growth capital has limited impact on current year operations. WestJet's capex in 2015 was $906 million, of which $841 million was growth capital (aircraft additions). The capex required to maintain the existing level of businesses was just $65 million. When you compare that to operating cash flows of $676 million (number is net of working capital adjustments) I would argue WestJet is a company that generated tremendous amounts of cash in 2015.

Perhaps you could question their desire to increase capacity in the current economic environment, but I don't think you can question their ability to generate cash in the past few years.


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## atrp2biz

Ethan said:


> Capex was greater than depreciation because WestJet grew the business. In the last 3 years, not only has WestJet grown their 737 fleet, they also purchased 4 Boeing 767's and started a subsidiary airline with 24 brand new Q400's. Of course their capex has been high, as it was planned to be. That their total capex was high in 2015 says little about their ability to generate cash.
> 
> When assessing a corporations free cash flow, most analysts deduct maintenance capital (ie not growth capital) from operating cash flows because growth capital has limited impact on current year operations. WestJet's capex in 2015 was $906 million, of which $841 million was growth capital (aircraft additions). *The capex required to maintain the existing level of businesses was just $65 million. * When you compare that to operating cash flows of $676 million (number is net of working capital adjustments) I would argue WestJet is a company that generated tremendous amounts of cash in 2015.
> 
> Perhaps you could question their desire to increase capacity in the current economic environment, but I don't think you can question their ability to generate cash in the past few years.


I don't disagree that WJA is trying to grow which accounts for much of its capex. But the bolded statement is a red flag. It would raise my eyebrow if capex to maintain the existing level of business is only 25% of PPE depreciation. Assuming today's dollars are equal to yesterday's dollars, you would think that they would be more or less the same. The fact you need more of today's dollars to get the same widget from yesterday's dollars further questions the sustainability of such low maintenance capex.

Like any company, I'm sure WJA had a capex budget approved by its board. But it had to balance growth and maintenance capex to meet its numbers. So as a result of its growth initiatives, it had to reduce maintenance capex. But you can only do that for so long before it bites you in the ***.

I'm just trying to play devil's advocate on the over-reliance of metrics using BV and earnings--but maybe the market is already playing that role.


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## Twixer

Ethan said:


> What's to like? How about record profits in 2015, or a PE ratio of 5, or shares trading below book value?


That is all past. PE is going to increase, they guided revenue per available seat mile to be 10-12% down in this quarter.


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## atrp2biz

I see where you get the $65 million value now (Other property and equipment and intangible additions), but that doesn't represent capex to maintain the existing level of business. I don't think that figure has an aircraft component in it. So the actual capex to maintain the current level of business is likely higher and closer to depreciation.


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## Ethan

Twixer said:


> That is all past. PE is going to increase, they guided revenue per available seat mile to be 10-12% down in this quarter.


Average analyst estimates are for $2.38 EPS in 2016, which at today's closing price of $15.27 would generate a forward PE ratio of 6.4. Is a 6.4 forward PE ratio reasonable for any industry? WJA earnings would have to fall by more than 70% this year just to bring their PE ratio to the TSX average. Just how much do you expect them to suffer?


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## Ethan

atrp2biz said:


> I don't disagree that WJA is trying to grow which accounts for much of its capex. But the bolded statement is a red flag. It would raise my eyebrow if capex to maintain the existing level of business is only 25% of PPE depreciation. Assuming today's dollars are equal to yesterday's dollars, you would think that they would be more or less the same. The fact you need more of today's dollars to get the same widget from yesterday's dollars further questions the sustainability of such low maintenance capex.


Today's dollars are not equal to yesterday's dollars, especially when it comes to amortization. WestJet amortizes their planes (other than landing gear and engines) over a 15-20 year period. The cost to buy a 737 in 1996 was significantly less than the costs to buy a 737 today, the consumer price index alone has increased 42% in that 20 year period. Depreciation is in yesterday's dollars; it should require more cash to get the same level of capital today.



> Like any company, I'm sure WJA had a capex budget approved by its board. But it had to balance growth and maintenance capex to meet its numbers. So as a result of its growth initiatives, *it had to reduce maintenance capex. But you can only do that for so long before it bites you in the ***.*


Why would you say WestJet had to reduce maintenance capex? First, their non-aircraft addition capex increased $18 million in 2015. Second, the aviation industry is heavily regulated, they don't get to choose when they do their maintenance capex. Their airplanes need to pass regular inspections, and items like engine overhauls need to be completed based on hours of usage. They have very little leeway in these matters.



> I'm just trying to play devil's advocate on the over-reliance of metrics using BV and earnings--but maybe the market is already playing that role.


I don't view any single metric in isolation as a reason to invest in a company, but in the case of WestJet I can't find a metric that would imply they are in any way overvalued. They have 2/3 of their market cap in cash! It's insane.


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## Ethan

atrp2biz said:


> It would raise my eyebrow if capex to maintain the existing level of business is only 25% of PPE depreciation. Assuming today's dollars are equal to yesterday's dollars, you would think that they would be more or less the same. The fact you need more of today's dollars to get the same widget from yesterday's dollars further questions the sustainability of such low maintenance capex.


Not trying to be a dick, I just enjoy these kinds of discussions.

I don't think much should be derived from the relationship between depreciation and capex. If WestJet were to upgrade their fleet, their maintenance capex would go down (new assets require less maintenance), and their depreciation would go up. If however they decided to fly their existing fleet for longer, maintenance capex would increase (older assets require more maintenance) and depreciation would be lower than if they were replaced (because the existing planes have a lower capital cost, and some of their older planes would be approaching $0 book value at which point there would be no more depreciation).

I suppose it's a moot point because WestJet has committed to upgrading much of their fleet. They currently have 114 Boeing 737's, they plan on buying 6 more in the next year to bring them to 120. Starting in September 2017, they will replace 65 of their 737's with the new model (737 MAX). WestJet currently has 25 Q400's, they've committed to adding 11 in the following 2 years. Management forecast 2016 capex to be $830 million to $850 million.

WestJet also has options to purchase 10 more 737 MAX and 9 more 400's, but I doubt those options will be exercised. As it is they are trying to defer some of their purchases. Boeing is willing to accomodate them but Bombardier is not.


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## atrp2biz

Ethan said:


> Today's dollars are not equal to yesterday's dollars, especially when it comes to amortization. WestJet amortizes their planes (other than landing gear and engines) over a 15-20 year period. The cost to buy a 737 in 1996 was significantly less than the costs to buy a 737 today, the consumer price index alone has increased 42% in that 20 year period. Depreciation is in yesterday's dollars; it should require more cash to get the same level of capital today.


Aren't we saying the same thing?





Ethan said:


> Why would you say WestJet had to reduce maintenance capex? First, their non-aircraft addition capex increased $18 million in 2015. Second, the aviation industry is heavily regulated, they don't get to choose when they do their maintenance capex. Their airplanes need to pass regular inspections, and items like engine overhauls need to be completed based on hours of usage. They have very little leeway in these matters.


I'm saying their maintenance capex should be close to depreciation--which it is not based on the $65 million number you provided. I clarified in my subsequent post.



Ethan said:


> I don't view any single metric in isolation as a reason to invest in a company, but in the case of WestJet I can't find a metric that would imply they are in any way overvalued. *They have 2/3 of their market cap in cash! It's insane.*


That's pretty meaningless. If I go out and get a loan for $1 million, does that mean I'm worth $1 million more?

My overall thesis is that for capital-intensive industries, earnings do not tell the whole story. The problem with earnings is that depreciation represents yesterday's costs which may not represent the capex necessary to sustain those earnings. In my opinion, cash flow (inclusive of capex) provides a better picture of company performance. But as you have alluded to, you have to bifurcate the growth and sustaining components of capex. All the investments WJA has recently made in its fleet aren't just for growth--they've sold older planes and replaced them with new ones with no increase in capacity.


----------



## atrp2biz

Ethan said:


> Not trying to be a dick, I just enjoy these kinds of discussions.
> I don't think much should be derived from the relationship between depreciation and capex. If WestJet were to upgrade their fleet, their maintenance capex would go down (new assets require less maintenance), and their depreciation would go up. If however they decided to fly their existing fleet for longer, maintenance capex would increase (older assets require more maintenance) and depreciation would be lower than if they were replaced (because the existing planes have a lower capital cost, and some of their older planes would be approaching $0 book value at which point there would be no more depreciation).



Ha! I enjoy these as well! 

I'm not entirely convinced with the statement about maintenance capex. I agree that maintenance expenditures would go down, but am not committed to maintenance capex. YoY, I agree you can't read too much into the relationship. However, over a few years, perhaps as low as 2-3 years, this relationship should hold true without issues arising down the road.


----------



## Ethan

atrp2biz said:


> Aren't we saying the same thing?


You were saying maintenance capex should be comparable to depreciation. I was arguing that it takes more dollars today to buy the same level of capital as it did in the past. But that doesn't mean capex needs to be more today than depreciation of previous capex. If WestJet bought a Boeing 737 for $20 million in 2000, they would amortize it for $1 million/year. I don't think it takes $1 million/year to keep that plane in the air.



> That's pretty meaningless. If I go out and get a loan for $1 million, does that mean I'm worth $1 million more?


Obtaining a $1 million loan would not increase your net worth by $1 million, but that wasn't the argument I was making. I wasn't saying cash on hand is a good way to value a company, but if you consider that in combination with their PE ratio, cash generation, book value/market cap I fail to see how anyone could think there is a significant risk to investing at this share price.



> My overall thesis is that for capital-intensive industries, earnings do not tell the whole story. The problem with earnings is that depreciation represents yesterday's costs which may not represent the capex necessary to sustain those earnings. In my opinion, cash flow (inclusive of capex) provides a better picture of company performance. But as you have alluded to, you have to bifurcate the growth and sustaining components of capex. All the investments WJA has recently made in its fleet aren't just for growth--they've sold older planes and replaced them with new ones with no increase in capacity.


They sold 10 Boeing 737-700's to SouthWest and replaced them with new Boeing 737-800's. There is a 38 passenger increase in capacity per plane and an increase in range. The 737-800 can fly routes like Vancouver-Hawaii or Saint John's to the UK that the 737-700 can't do. Not to mention the newer airplanes require less maintenance, will last longer and are more fuel efficient.


----------



## atrp2biz

I'll be quick because I really have to do some *real *work.

We can agree to disagree on the maintenance capex vs. depreciation issue.

Another way to look at their cash is that half of it is for advanced ticket sales--they haven't even earned it yet.

You clearly know more than I on WJA's planes, but purchasing better/larger planes even taking into account the cash receipt for selling the old planes to LUV seems like an expensive way to increase capacity.

Aside: I'm long WJA.


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## CPA Candidate

I just wanted to say that there is no such thing as maintenance cap ex in accounting. You either repair/maintain an asset and expense the cost immediately, or you make it better than it was (a betterment) by extending it's life or improving it's performance, efficiency, etc. That spending can be capitalized and depreciated - but it would never be referred to as maintenance. 

Maintenance cap ex is a finance industry term that means maintaining capacity to do something.


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## atrp2biz

I get what you're saying, but there are assets within assets and this might just be a matter of semantics. As what is likely a very bad example, let's look at seats within an aircraft and the aircraft itself. Let's say the seats have a useful life of 5 years, but the aircraft itself has a useful life of 20 years (I have no idea what the actual useful lives are). When it's time to put in new seats, the cost is capitalized. I think we're loosely calling this 'maintenance' capex in our discussion above. This is in contract to 'growth' capex to either increase capacity or improve efficiency, etc.


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## celishave

Ethan said:


> What's to like? How about record profits in 2015, or a PE ratio of 5, or shares trading below book value?


And what conviction do you have that the E in PE will remain the same/increase in this challenged economic environment?


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## Twixer

Ethan said:


> Average analyst estimates are for $2.38 EPS in 2016, which at today's closing price of $15.27 would generate a forward PE ratio of 6.4. Is a 6.4 forward PE ratio reasonable for any industry? WJA earnings would have to fall by more than 70% this year just to bring their PE ratio to the TSX average. Just how much do you expect them to suffer?


Delta forward P/E is also 6.4 and great majority of their customers benefit both from low oil prices and strong domestic currency. Airline industry traditionally trades at low P/E. It is often unionized or have some employee profit sharing program. It has big risk from epidemics, political instability, terrorism and plain crushes. Demand for their services is very elastic. This industry has seen many bankruptcies. 

It is hard to estimate how much they will suffer. There is no replacement for oil jobs and oil revenue. When people see friends, relatives and co-workers lose their jobs, they turn from travelers into savers quickly. 

It is play on Canadian, particularly AB consumer. Which means mostly price of oil minus risks mentioned above . 

On positive side. WJA earnings are very exchange sensitive and recent weakness in USD will help. Also, i think there will be much more Americans coming to Canadian skiing resorts then previous year. Whistler Blackcomb posted very strong results two days ago.


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## Ethan

celishave said:


> And what conviction do you have that the E in PE will remain the same/increase in this challenged economic environment?


I don't expect their earnings to increase. The forward PE ratio of 6.4x assumes an 18% drop in profit. In other words, even if profits fall 18%, the shares will trade for only 6.4x earnings.

I'm not arguing WestJet is a buy because I expect them to grow their earnings, I'm arguing WestJet is a buy because their shares are tremendously undervalued.


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## besmartrich

Ethan said:


> I don't expect their earnings to increase. The forward PE ratio of 6.4x assumes an 18% drop in profit. In other words, even if profits fall 18%, the shares will trade for only 6.4x earnings.
> 
> I'm not arguing WestJet is a buy because I expect them to grow their earnings, I'm arguing WestJet is a buy because their shares are tremendously undervalued.


I agree. This is very absurd and probably would not last very long.


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## avrex

Westjet stock has been struggling so far in 2016. I'm assuming this has something to do with the impact of the Alberta economy.

In any case, the stock was up on Friday by a nice 5.0%

Also, a note for Monday.....

Happy 20th Birthday Westjet.


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## CPA Candidate

Up another 7% today.

The market corrected it's previous correction and it's pretty sure it's got it right this time. :stupid:


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## avrex

Yes
:encouragement:


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## peterk

peterk said:


> In @ $14.79


Excellent! Almost broken even on this now, haha.


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## CPA Candidate

WJA has now made it back to its price before the gap down. So what was that all about again? Oh right, buying opportunity! I only wish I had waited a few more days and gotten in at $15 instead of $16.50. I see mid 20s a year out.


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## Mechanic

Temped to sell. Up 17.5%. Maybe watch, ex-div next week. I still feel this could go a fair bit higher.


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## CPA Candidate

For someone buying this in the mid-teens, doubling up is not out of the question. I plan to hold for much higher prices.


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## Mechanic

up over 20% today. Keeping a beady on it but also think it has a ways to go.


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## 1980z28

Div soon


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## Mechanic

Still going strong


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## thepitchedlink

Holy smokes I'm back in the green!!


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## jargey3000

thepitchedlink said:


> Holy smokes I'm back in the green!!


well, sure it IS (Was) St. Paddy's Day !!!!


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## 1980z28

jargey3000 said:


> well, sure it IS (Was) St. Paddy's Day !!!!


Green today


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## jargey3000

sooo... closed at $20.34 today(March 18). where's it headed from here folks?


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## 1980z28

Don`t worry about the penny`s

Research you purchase and place your buy price,when it hit`s it it is done

When buying I also post a buy price and there it is,I check it the next day to see if it has gone


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## 1980z28

when selling I set my price and wait

Unless I need to sell on the spot and than buy

I sold all my cwb today and purchase others at the same time(spent about 50k in 2 minutes)


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## arc

WestJet is fantastic, I am going to buy more call options on this!!


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## CPA Candidate

CPA Candidate said:


> I got a fill of $16.50 today. Book value is about $15.75 per share.


 Value investing is dead! All smart people sell the lows.

Today's close $22.23


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## Nordic

CPA Candidate said:


> Value investing is dead! All smart people sell the lows.
> 
> Today's close $22.23


Haha; how nice of the market to finally become rational again after a year of stupidity.


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## JP*

I bought at $28.51 last year.


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## thepitchedlink

And down we go again.....I wish this would stop, I don't want to own any more airline!!!!


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## jerryhung

thepitchedlink said:


> And down we go again.....I wish this would stop, I don't want to own any more airline!!!!


I say the same thing about AC
will dump it after breakeven ($10.60 after so many average down)...and no more airline stocks for me ever (Buffett was right!!)


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