Versant Partners analyst Cameron Doerksen has cut his rating on WestJet Airlines to "hold" from "buy" but has launched his coverage of niche air services provider cleared Discovery Air with a "buy."
Shortly after WestJet reported more strong traffic statistics for December this morning, Mr. Doerksen told clients in a note that he has lowered his WestJet rating because, at $21.65, its current share price is "represents only 9 per cent upside to our target," which is $23.50. Even though he sees "several potential positive catalysts" on the radar for Canada's second largest airline, he said he remains concerned about high jet fuel prices and U.S. economic uncertainty.
Then there is Discovery Air. Its operating units include Hicks & Lawrence, which runs a fleet of 30 fixed wing aircraft largely engaged in forest fire surveillance in Ontario, under government contract, and Great Slave Helicopters, base in Yellowknife, which operates a fleet of 73 light and medium helicopters, mainly serving mining and energy companies. It also owns Air Tindi, a charter and scheduled airline based in Yellowknife, and Top Aces, which provides airborne combat training services to the Department of National Defence.
Mr. Doerksen hast set a 12-month target price of $2 on the shares, which closed Friday at $1.28, based on a 20 times price-earnings multiple and a fiscal 2009 share profit forecast of 10 cents. He says Discovery has a "proven track record" of acquiring nice aviation companies, that there are plenty of others still to buy, that the continued boom in natural resources means it will continue to benefit from its northern Canada focus. He also figures Top Aces, the most recent big acquisition, could bid on fighter training in the U.S. and abroad.
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