Cancun Airport Merge Affects ASR

We are reiterating our Hold recommendation on Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR - Analyst Report). First quarter operating results were better than expected and the outlook for the very short term remained encouraging since passenger traffic continued to increase.

Nevertheless, the continued increase in oil prices, higher inflation and interest rates throughout the world and the difficult economic environment in the U.S. are important sources of concern. Finally, the stock’s valuation is not particularly attractive.

The continued growth in passenger traffic is a key point behind the company’s success. Despite the huge importance of aeronautical revenues for ASR, the commercial use of airports remains the most important source of revenue growth. In this sense, it is quite encouraging to find out that ASR’s non-aeronautical revenues were up 44.8% year over year in the first quarter.

For the very short term, we continue to expect positive numbers, mainly commercial revenues due to the consolidation of the terminal 3 of Cancun airport. We believe that the continued growth in passenger traffic coupled with the consolidation of terminal 3 of Cancun airport will be the main points behind positive results in the very short-term.

At its current price, ASR is trading at 15.7x our 2008 EPS estimate. This is in line with the industry median P/E multiple. We project that in the following months, the stock will trade with a 2008 P/E multiple of between 16.5x and 17x our earnings estimate between the industry median and mean. Our target price is $55.50.

Read the full analyst report on ASR