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Here's Why Investors Should Hold Copa Holdings (CPA) Now

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Copa Holdings, S.A. (CPA - Free Report) is benefiting from fleet modernization techniques and rising air-travel demand.

Factors Favoring CPA

Upbeat air-travel demand aided Copa Holdings' performance in second-quarter 2023, wherein it reported better-than-expected earnings per share and revenues. Operating revenues for the June quarter improved 16.7% year over year on the back of passenger revenues. Passenger revenues (contributed 95.6% to the top line) increased 17.8% from second-quarter 2022 actuals, owing to higher load factors and yields.

On a consolidated basis, traffic (measured in revenue passenger miles) grew 15.4% and capacity (measured in available seat miles) rose 13.6%. As a result, the load factor expanded 1.3 percentage points to 86.1% in the reported quarter.

For 2023, Copa Holdings expects consolidated capacity or ASMs to register 12-13% growth over 2022. Operating margin is projected to be between 22% and 24%. The load factor is now forecast to be around 86% (prior view: 85%).

We are encouraged by Copa Holdings' initiatives to modernize its fleet. Apart from adding planes, this carrier is replacing the outdated models as part of its fleet modernization efforts. CPA exited 2022 with a consolidated fleet of 97 aircraft, which comprises 67 Boeing 737-800s, 22 Boeing 737 MAX 9s, nine Boeing 737-700s and one Boeing 737-800 freighter.

During the first quarter of 2023, the carrier took delivery of two Boeing 737 MAX 9 aircraft. During second-quarter 2023, CPA received two Boeing 737 MAX 9 aircraft.

Key Risks

The company’s current ratio (a measure of liquidity) stood at 0.74 at the end of second-quarter 2023, lower than 1.11 reported at first-quarter 2023 end. A current ratio of less than 1 implies that the company doesn't have enough liquid assets to cover its short-term liabilities.

Zacks Rank

CPA currently carries Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) and Kirby Corporation (KEX - Free Report) .

GATX, which presently carries a Zacks Rank #2 (Buy), is aided by a gradual improvement in the North American railcar leasing market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For third-quarter and full-year 2023, GATX’s earnings are estimated to register a 36.6% and 14.3% climb, respectively, on a year-over-year basis.

Kirby currently carries a Zacks Rank #2. Strong segmental performances are boosting Kirby’s top line.

For third-quarter and full-year 2023, KEX’s earnings are suggested to record 58.5% and 76.2% improvement, respectively, on a year-over-year basis.

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