WestJet Unwisely Ignored by Market - Raymond James

With shares in WestJet Inc. (WJAVF.PK) down almost 25% since the beginning of the year, Ben Cherniavsky thinks it's time investors took another stab at the Canadian airline,

The Raymond James analyst upgraded his rating on WestJet from "market perform" to "outperform" on Tuesday and raised his price target from C$10 to C$12.

He told clients in a note:

Our key conclusion is that at the current stock price the market appears to be taking full account of the many weaknesses and threats that the company faces, while largely dismissing its attractive strengths and opportunities.

WestJet shares started 2009 on a winning note, having rebounded from a 52-week low of C$8.34 in November to hit C$14.95 at the end of January. Since then, the stock has languished as the recession took hold and weak earnings results started to roll in. On Monday, it closed at C$9.76, its lowest close since early December.

Crunching numbers using three different valuation metrics, Mr. Cherniavsky believes WestJet stock is currently discounted a sufficient amount of bad news.

In particular, he said the company is trading at a historically low multiple to depressed earnings, while its price-to-book value multiple of 1.1x is also near bottom.

Lastly, he said the airline's future earnings power is attractive, assuming the return of normal economic conditions and the execution of WestJet's long-term strategic goals.

"WestJet’s next ‘peak cycle’ EPS could be close to C$1.75, which we believe is sufficient to attract long-term value investors to this stock," the analyst wrote.