WestJet: 2008 Sell-Off Offers Buying Opportunity

The 35% sell-off of WestJet Airlines Ltd. (WJAVF.PK) since the start of the year had Cameron Doerksen, Versant Partners analyst, upgrading the Calgary-based airline from a ‘hold’ to a ‘buy’ Thursday.

In a note to clients he said:

Although we remain cautious on the impact of jet fuel prices on the airlines, we believe that WestJet shares have sold off to the point where the valuation has become more compelling.

Mr. Doerksen did, however, lower his earnings estimates slightly on higher fuel prices and the expectation that the recently implemented fuel surcharges and corresponding fare increases will lower demand after the busy summer months. His new target price is C$18 a share, down from C$20, which implies an upside of 23% based on its close on Wednesday.

He added that the recently announced capacity cuts at Air Canada (AIDIF.PK) and other U.S. carriers bode well for WestJet, which plans to push ahead with its 16% capacity increase this year.

He said:

Unlike US airlines that are exposed to softening economic conditions, WestJet is more exposed to the still relatively healthy Canadian market and to the more resilient Western Canada market specifically.