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

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The uptick in air-travel demand (particularly on the leisure front) bodes well for Copa Holdings (CPA - Free Report) . However, escalated fuel costs, a primary headwind, are limiting its bottom-line growth.

Factors Favoring CPA

The improvement in air-travel demand in Latin America is a huge boon for Copa Holdings. In the second quarter of 2022, passenger revenues (contributed 94.7% to the top line) increased 5.9% owing to higher demand and favorable pricing.

With more and more people again resorting to air-travel as coronavirus-related restrictions are eased, the buoyancy in air-travel demand continues. This is evident from CPA’s impressive traffic report for August.

In August 2022, Copa Holdings’ traffic, measured in revenue passenger miles (RPMs), increased 2% to 1.85 billion from the comparable period’s level in 2019. Increased passenger volume led to this upside. Owing to upbeat demand, capacity — measured in available seat miles (ASMs) — inched up 0.4% from the 2019 level to 2.13 billion. With traffic growth outpacing capacity expansion, load factor (% of seats filled by passengers) improved 140 basis points (bps) to 86.6% in the same month.

Copa Holdings’ efforts to modernize its fleet are praiseworthy too. Focus on its cargo unit also bodes well. Cargo and mail revenues increased 51.9% in the first half of 2022.

A Key Risk

Escalating fuel costs pose a threat to Copa Holdings’ bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia's invasion of Ukraine.

Average fuel price per gallon surged 86.1% from the same-period level in 2019 to $4.14 in second-quarter 2022. Total operating expenses at CPA, currently carrying a Zacks Rank #3 (Hold), increased 15.8% to $651.1 million due to the significant increase in fuel costs. Costs are likely to be high in the September quarter as well.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the Zacks Transportation sector are SkyWest (SKYW - Free Report) , Triton International  and C.H.Robinson (CHRW - Free Report) .

Continued recovery in air-travel demand bodes well for SkyWest. With an improvement in air-travel demand, SKYW carried 32.7% more passengers in the first half of 2022 than the year-ago level. As a result, the passenger load factor (percentage of seats filled by passengers) expanded 1450 basis points to 82.1% in the first half of 2022.

SKYW’s fleet-modernization efforts are commendable as well. The positivity surrounding the stock is evident from the Zacks Consensus Estimate for current-year earnings being revised more than 100% upward over the past 60 days. SKYW currently sports a Zacks Rank #1.

Triton is being aided by the gradual increase in trade volumes and container demand. Triton expects container demand to remain strong throughout 2022. Measures to reward TRTN's shareholders through dividends and buybacks instill confidence in the stock further.

Triton has an expected earnings growth rate of 22.4% for the current year. TRTN’s earnings outpaced the Zacks Consensus Estimate in each of the last four quarters, the average being 7.5%. TRTN currently carries a Zacks Rank #2 (Buy).

C.H. Robinson is being aided by an improving freight scenario in the United States. Efforts to control costs also bode well. Measures to reward CHRW's shareholders instill confidence in the stock further.

CHRW has a pleasant earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark in the remaining one). The stock has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 17.6% upward over the past 60 days. C.H. Robinson currently carries a Zacks Rank of 2.


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C.H. Robinson Worldwide, Inc. (CHRW) - free report >>

Copa Holdings, S.A. (CPA) - free report >>

SkyWest, Inc. (SKYW) - free report >>

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