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Grupo Aeroportuario del Centro Norte SAB de CV

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American Depository Shares (ADSs) for Grupo Aeroportuario del Centro Norte SAB de CV (OMAB - Free Report) have gained nearly 36% year-to-date, thanks in large part to the gradual recovery of the Mexican air transport industry, management’s initiatives to improve the passenger experience, revenue diversification and a favorable exchange rate. Moreover, this Mexican airport operator currently enjoys a handsome dividend yield of 3.75%.

The ADSs received a further boost after the company reported strong first-quarter 2012 earnings results. Earnings estimates have been moving higher since then, helping it achieve a Zacks #2 Rank (Buy). Grupo Aeroportuario recently announced that its consolidated terminal passenger traffic increased 6.8% year over year in June 2012. This was the tenth consecutive month that the company’s traffic volumes increased.

A Strong Quarter

On April 26, Grupo Aeroportuario reported robust financial results for the first quarter of 2012, including net earnings per ADS of 29 cents that improved 61.1% year over year from 18 cents. This healthy growth was primarily attributable to solid operating results and a favorable exchange rate.

Total revenue of approximately $55 million was up 11.5% year over year, mainly driven by higher passenger traffic.

Adjusted EBITDA surged 28.6% year over year to approximately $27.2 million. The adjusted EBITDA margin was 55.3%, compared with 51.5% last year. Total terminal passenger traffic increased 7.6% to 2,895,695 from 2,691,566. Total flight operations inched up 2.7% to 82,977 from 80,799.

Earnings Estimates Shoot Up

The Zacks Consensus Estimate for 2012 moved up 4.6% to $1.14 over the last 90 days, while it increased 10.5% to $1.37 for 2013. The current Zacks Consensus Estimate for 2012 indicates a year-over-year improvement of 18.5%, while the current estimate for 2013 implies an even larger progress of 20.7%.

Attractive Dividend Yield

Grupo Aeroportuario’s regular dividend yields 3.75%. However, on May 30, 2012, the company paid a special dividend of 71.3 cents per ADS. As a result, the effective dividend yield of Grupo Aeroportuario is currently around 6.44%, which is significantly above its 5-year average dividend yield of 3.6%. The Payout ratio is 64%.

Valuation Looks Reasonable

The current forward P/E multiple of 14.11x implies an enormous discount of 165.5% from the peer group average of 37.46x. However, with respect to Price/Sales, the stock is currently trading at 3.03x, a 99.3% premium to the peer group average of 1.52x. The stock looks attractive given a trailing 12-month ROE of 11% compared with its peer group average of negative 2.6%.

Chart Shows Growth

The stock has been consistently trading above its 200 and 50-days moving averages since June 2012. Average volume also remains fair at 20 K. The widening gap between the stock price line and that of the 50 and 200-days moving averages suggest future growth potential for Grupo Aeroportuario.

In a Nutshell

Future growth of Grupo Aeroportuario is closely related to the recovery of the Mexican economy, especially its air transport sector. Management has done a commendable job modernizing the airports. It diversified its revenue stream in related fields, such as opening restaurants, retail stores, car rentals, advertisement spaces and time share locals. Increasing passenger traffic, effective management execution, and a fabulous dividend yield make Grupo Aeroportuario a solid pick for growth & income investors.

Headquartered in Apodaca, Mexico, Grupo Aeroportuario del Centro Norte SAB de CV holds a 50-year concession through 2048 to operate 13 international airports and a hotel in 9 states in the central and northern regions of Mexico. Grupo Aeroportuario-managed airports fulfill international safety norms and have received environmental compliance certificates.

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