Back to top

Image: Bigstock

Strong Liquidity Aids Copa Holdings (CPA) Amid High Fuel Cost

Read MoreHide Full Article

We have recently updated a report on Copa Holdings, S.A. (CPA - Free Report) .

Copa Holdings has an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of quality and sustainability of growth.

Copa Holdings’ liquidity position is encouraging. The carrier exited the fourth quarter of 2021 with cash and cash equivalents of $1,017 million, significantly higher than its current debt level of $196.6 million. This implies that the company has enough cash to meet its short-term debt obligations. The company’s current ratio at the end of the fourth quarter was 1.10. A current ratio of more than 1 implies that the company has sufficient financial resources to remain solvent over the short term.

CPA’ operating expenses have lowered substantially, which is partly offsetting coronavirus-led woes. In the fourth quarter, total operating expenses declined 36.8% from fourth-quarter 2019 actuals with a 13% decline in fuel expenses, owing to reduced fuel gallons’ consumption (down 22.8% year-over-two-year). Additionally, expenses on passenger servicing declined 50.8% on a year-over-two-year basis. Expenses on wages, salaries and other employee benefits dropped 30.1% in the said time period due to reduced headcount. Flight operation costs also plunged 23%.

Oil is currently trading above $100 a barrel. This level was last touched in 2014. Russia’s launch of military operations in Ukraine skyrocketed the commodity price. The upsurge is reflective of the concerns about oil supplies from Russia, which is one of the world's largest producers of the commodity. Such escalation in oil price does not bode well for Copa Holdings’ bottom line as fuel expenses represent one of the highest input costs for the carrier.

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 J.B. Hunt Transport Services, Inc. (JBHT - Free Report) , Union Pacific Corporation (UNP - Free Report) and Triton International Limited (TRTN - Free Report) .

The long-term expected EPS (three to five years) growth rate for J.B. Hunt is pegged at 15%. JBHT is benefiting from strong performances across all its segments. While the Dedicated Contract Services (DCS) unit is being aided by fleet-productivity improvement and a rise in average revenue-producing trucks, the Integrated Capacity Solutions (ICS) unit is gaining from favorable customer freight mix as well as higher contractual and spot rates.

JBHT’s measures to reward shareholders are encouraging. Driven by the tailwinds, the stock has increased 29.3% in the past year. J.B. Hunt currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected EPS (three to five years) growth rate for Union Pacific is pegged at 10%. With economic activities gaining pace, freight revenues (accounting for a bulk of the top line) are improving. Freight revenues increased 11% year over year in 2021. Segment-wise, freight revenues in 2021 increased 12%, 11% and 11% in the bulk, industrial and premium units, respectively.

Driven by the tailwinds, the stock has increased 21.8% in the past year. UNP currently carries a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Triton is pegged at 10%. Gradual increases in trade volumes and container demand bode well for the company. With easing coronavirus-led restrictions in the United States and Europe, the company saw a strong rebound in its business in the third, the fourth of 2020 as well as in each of the four quarters of 2021.

Driven by the tailwinds, the stock has increased 18% in the past year. TRTN currently carries a Zacks Rank #2.