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Estimates have been rising for Copa Holdings, S. A. (CPA - Snapshot Report) after the company delivered better than expected first quarter revenue and earnings.
It is a Zacks #2 Rank (Buy) stock.
The company also recently increased its annual dividend by 28% to $2.10 per share, which equates to a yield of 2.6%. Valuation is attractive too, with shares trading at less than 10x forward earnings.
Company Description
Copa Holdings provides services to 59 destinations in 28 countries in North, Central and South America and the Caribbean. It is headquartered in Panama City, Panama.
Copa has a market cap of $3.6 billion.
First Quarter Results
Copa reported better-than-expected first quarter results on May 9. Earnings per share came in at $2.04, beating the Zacks Consensus Estimate of $2.00. It was an 11% increase over the same quarter in 2011.
Total revenue surged 30% to $543 million, well ahead of the Zacks Consensus Estimate of $522 million. Operating revenue per available seat mile (RASM) was up 6% to 14.2 cents, while operating cost per available seat mile (CASM) rose 10% to 11.3 cents (largely due to a 20% increase in the effective price of jet fuel).
Operating income was up 12% year-over-year while the operating margin declined from 23.7% to 20.5% of revenue.
Estimates Rising
Following strong Q1 results, analysts revised their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).
Analysts are projecting strong growth for Copa over the next two years. The Zacks Consensus Estimate for 2012 is $7.85, which represents 11% EPS growth. The 2013 consensus estimate is currently $9.15, corresponding with 17% EPS growth.
Solid Income
Copa pays an annual dividend up to 30% of its net income. In May it paid out $2.10 per share, which equates to a 2.6% dividend yield. This was a 28% increase over the previous year and marked the 5th dividend hike in the last 6 years.
Attractive Valuation
Valuation looks compelling with shares trading at just 9.3x forward earnings, a discount to the industry median of 10.0x. Its Enterprise Value to EBITDA multiple is 8.4, below its historical multiple of 9.7.
The Bottom Line
With nice tailwinds stemming from an emerging middle class, this airline offers investors plenty of growth potential. Throw in a 2.6% dividend yield, and shares look very attractive at just 9.3x forward earnings.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.
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