Transat AT Estimates Cut on Weak Q1 Results

Increased competition in Canadian travel tour market is expected drag on prices into the second quarter of 2008, which has several analysts dropping their earnings estimates for Transat AT (TRZAF.PK), the parent company of Air Transat, after its weaker-than-expected first quarter result.

Transat said Wednesday that despite a record number of Canadians traveling south this year, a glut of excess capacity has forced down ticket prices and eroded its profits. Early indicators suggest that that pricing pressure will continue into March, according to Cameron Doerksen, Versant Partners analyst. He said:

We had previously expected that pricing might firm somewhat for the seasonally stronger [second quarter], but this now does not appear to be the case.

Accordingly, Mr. Doerksen dropped his earnings estimate for 2008 to C$1.90 a share, down from C$2.46, and his estimate for 2009 to C$2.22 a share, down from C$2.79. His new target price is C$30 a share, down from C$37, but he maintained his “buy” rating on the stock, suggesting that the market will likely self-correct with Transat maintaining its dominant position.

David Newman, National Bank Financial analyst, also dropped his earnings estimate after Transat’s lackluster results. He said he now expects C$2.27 earnings per share in 2008, down from C$2.49, and C$2.75 a share in 2009, down from C$3.07. His new target price is C$35, down from C$40, though he maintained his “outperform” rating on the stock.