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Last week, we featured a list of 18 Canadian mid-cap stock leaders that had year-to-date returns of at least 10 per cent, and have at least a 10-per-cent return forecast by analysts for the next 12 months. We featured Stella-Jones and CCL Industries; now we turn to the stock with the highest forecast returns, Air Canada.

Air Canada is the largest airline operator in Canada and among the top 20 airlines in the world.

The company reported exceptional first-quarter earnings results on May 12 and the stock price rallied 3.8 per cent that day, while the S&P/TSX composite index declined 0.7 per cent. The strong performance is expected to continue, although moderately.

Management has delivered solid revenue growth and improved profitability. These trends are expected to continue. Here's why:

Revenue growth: Revenue growth is anticipated to continue from initiatives such as increased global market penetration as well as from increasing revenue from ancillary services.

The company plans on expanding its lower-cost structured Air Canada Rouge network, to additional international leisure routes. At the end of 2014, Air Canada rouge operated a fleet of 28 aircraft; the fleet is expected to reach 36 planes by the end of 2015.

In terms of ancillary revenue, a new "premium economy class" offering, baggage fees, seat selection and Wi-Fi connection fees are just a few of management's initiatives aimed to increase revenue.

Management's new Revenue Management System, designed to optimize passenger traffic, is anticipated to drive incremental annual revenue of over $100-million, effective in the second quarter.

Earlier this year, Air Canada finalized a new capacity purchase agreement with Jazz Aviation LP that is expected to result in approximately $550-million in financial value over the next six years.

In 2014, revenues increased 7 per cent from the prior year, the company reported record EBITDAR (earnings before interest, taxes, depreciation, amortization, and impairment and aircraft rent), and impressive earnings growth, reporting earnings a share of $1.81 in 2014 compared with $1.20 a share in 2013. In the first quarter, revenue growth continued, with the company reporting a 6-per-cent year-over-year increase.

Furthermore, on July 7, the company reported solid June traffic results. Systemwide traffic increased 10.1 per cent, systemwide capacity increased 10.5 per cent and the load factor, a measure of how many seats had passengers, was strong at 85.4 per cent.

Cost controls: The company can achieve cost savings from changes such as operating more cost-efficient aircraft, pension cost savings and stands to benefit from lower jet fuel prices.

The company is making changes to its fleet to improve profitability.

In May, management elected to opt-out of the Air Canada Pension Plan Funding 2014 Regulations, resulting in expected cash flow savings of $110-million in 2015.

Rising profitability: Management anticipated EBITDAR margins will expand from 12.6 per cent in 2014 to a target range of 15 per cent to 18 per cent from 2015 to 2018. Return on invested capital is also forecast to expand from 12.1 per cent in 2014 to a targeted range of 13 per cent to 16 per cent between 2015 and 2018.

Improving balance sheet: The company's balance sheet is forecast to continue to improve, with debt levels declining. Adjusted net debt to EBITDAR was 2.6 times at the end of the first quarter. Management has a target of 2.2 times by 2018.

Insider trading: According to an insider transaction report, president and CEO Calin Rovinescu purchased 10,000 shares at $13.86 on June 9, which shows he has confidence in the company's financial strength.

Valuation: The stock currently trades at a discount to its peers with an enterprise value/EBITDAR multiple of 3.6 times the 2016 consensus EBITDAR estimate. The valuation is reasonable, with room for multiple expansion.

Chart watch: Year-to-date, the stock price is up nearly 12 per cent. The stock delivered solid performance in 2013, 2014 and year-to-date. The uptrend remains intact with the stock price achieving higher highs and higher lows. There is downside support at $13, near its 50-day moving average, $12.50, and $12. There is upside resistance at $14.20 and $14.50.

Analysts' recommendations: There are 14 "buy" recommendations and two "hold" recommendations. One-year target prices range from $14 to $25, with an average target of $19.13, equating to a one-year potential price return of 43 per cent. Several analysts have been increasing their EBITDAR forecasts for 2015.

The bottom line: The stock price has corrected nearly 10 per cent since it closed at $14.50 on June 3. It closed Tuesday at $13.16, down 18 cents. If the stock price pulls back below $13, I would recommend buying shares for a diversified portfolio. Air Canada does not pay a dividend.

(Update: At 1116 a.m. (ET) Wednesday, the stock was trading at $13, down 1.2 per cent, after hitting an intraday low of $12.95.)

Jennifer Dowty, CFA, Globe Investor's in-house equities analyst, writes exclusively for our subscribers at Inside the Market. E-mail any stock suggestions that you want profiled to