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Transat A.T. Upgraded To 'Sector Performer' By CIBC, $7 PT Maintained

 April 20, 2012 10:56 AM

(By Balaseshan S) CIBC World Markets Inc. analyst Kevin Chiang upgraded his rating on shares of Transat A.T. Inc. (TSE:TRZ.B) to "Sector Performer" from "Sector Underperformer" while maintaining $7 price target.

While Chiang recognizes that TRZ faces a number of headwinds (overcapacity in the sun destination markets, increased competition from scheduled carriers, fuel costs), he believes much of this has been priced in.

TRZ's valuation on an EV to forward EBITDA is hovering at all time lows, currently trading at 0.1 times consensus fiscal 2013 EBITDA. We would argue that investors now have a free option that TRZ can successfully execute on its turnaround strategy.

While TRZ's earnings have lagged post-recession, its balance sheet remains strong. Cash per share is currently $5.62 and price to book value is 0.6 times. TRZ has no long-term debt. In terms of TRZ's turnaround strategy, it expects this will contribute $50 million to the margin by 2014.

[Related -Long-term Relationships and Credit Scores]

The analyst lowered his 2012 EBITDA estimate to $11.60 million from $20.90 million and his 2013 estimate to $47.70 million from $49.90 million, to account for higher fuel price assumptions and to match his in-house forecast.

Transat A.T. is an integrated tour operator in North America. It operates mainly in the holiday travel industry and markets its services in the Americas and Europe. Transat's main business involves developing and marketing holiday travel services in package and air-only formats.

TRZ.B is trading up 1.09% at $5.55 on Friday.

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