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Here's Why You Should Retain Copa Holdings (CPA) Stock Now

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Copa Holdings, S.A. ‘s (CPA - Free Report) shares have rallied 49.9% in the past year compared with 34.5% growth of the industry it belongs to.

Zacks Investment Research
Image Source: Zacks Investment Research

The company’s earnings are anticipated to register growth of 59.7% and more than 100% in 2021 and 2022, respectively. The carrier has a trailing four-quarter earnings surprise of 14.5%, on average (including two miss and two beat).

Key Growth Drivers

Copa Holdings’ operating expenses have reduced substantially, which is partly offsetting the coronavirus-induced revenue declines. In the second quarter of 2021, total operating expenses declined 47.5% from its second-quarter 2019 actuals with 60.4% decline in fuel expenses due to reduced fuel consumption (down 55.5% year-over-two-year). Additionally, expenses on passenger servicing declined 70.6% on a year-over-two-year basis.

The carrier’s liquidity position is encouraging. The carrier exited the second quarter of 2021 with cash and cash equivalents of $1,182 million, significantly higher than its current debt level of $154 million. This implies that the company has enough cash to meet its short-term debt obligations. The carrier’s total debt to total capital ratio was 0.54 at the end of second-quarter 2021, lower than the previous quarter’s 0.56. Lower debt-to-capitalization ratio indicates that the proportion of debt to finance the company’s assets is declining and so is the risk of insolvency.

Primary Concern

Rising fuel prices are hurting Copa Holdings’ already weak bottom line. Average price per fuel gallon stood at $1.75 in the first quarter of 2021. Sequentially, the metric increased 13.1% to $1.98 in the June-end quarter. The metric in the September quarter is estimated to be $2.15.

Zacks Rank & Stocks to Consider

Copa Holdings currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , Landstar System, Inc. (LSTR - Free Report) and Herc Holdings Inc. (HRI - Free Report) . Knight-Swift and Landstar carry a Zacks Rank #2 (Buy), while Herc Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 49.2%, respectively.

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