For Immediate Release
Chicago, IL – November 25, 2016 – Zacks Equity Research highlights Copa Holdings, Inc. (NYSE:(CPA - Free Report) – Free Report) as the Bull of the Day and Andersons, Inc. (Nasdaq:(ANDE - Free Report) – Free Report) as the Bear of the Day.
Here is a synopsis of all two stocks:
Bull of the Day:
Copa Holdings, Inc. (NYSE:(CPA - Free Report) – Free Report) is seeing positive travel trends in Central America as the middle class expands. This Zacks Rank #1 (Strong Buy) is on the rebound with earnings expected to jump 49% in 2017.
Copa is a passenger and cargo airline operating out of Panama City, Panama with service to 74 destinations in 31 countries in North, Central and South America and the Caribbean. It operates 99 aircraft including 78 Boeing &37NG and 21 EMBRAER-190s.
October Traffic Spikes
On Nov 10, Copa reported its October 2015 system-wide passenger traffic (RPMs) rose 13.7% year over year. Capacity (ASMs) increased just 1.4%.
System load factor for October was 83.3%, a big 9% improvement over the year ago month.
New Low Cost Brand
In October, Copa announced it would begin operating a new low cost airline with basic airfares and few frills for the Central American market on December 1, 2016 called wingo.com.
Looking at the website, which is in Spanish to appeal to that market, it looks like many flights will originate out of Bogota. In a reflection of the growing middle class, and wealth, in Colombia, many of the flights are to tourist destinations including to Cancun, Aruba, Punta Cana as well as Havana, Caracas and Mexico City.
The start-up airline will also fly some domestic Colombian routes as well.
Colombia is among the fastest growing aviation markets in Central and South America.
Fourth Beat in a Row in the Third Quarter
On Nov 8, Copa reported its third quarter results and beat the Zacks Consensus for the fourth quarter in a row. Copa beat the Zacks Consensus Estimate by 2 cents, reporting $1.30 versus the consensus of $1.28.
Revenue rose 4% to $569 million as higher load factors offset a 7.6% reduction in yield per passenger mile.
For the third quarter, RPMs rose 12.7% year-over-year with 2% capacity expansion. As a result, consolidated load factor was 84.2%, or 8% better than the third quarter of 2015.
The airline used to be one of the largest operators in Venezuela but it has since pulled out of a lot of the operations there.
Still, as of the third quarter, it had short-term investments which included $265 million of cash in Venezuela as of September 2014. Long-term investments include $427 million and $239 million of cash in Venezuela as of September 2014 and 2015.
Earnings Turning Around
It's been a rough 2-years for Copa with its problems in Venezuela and falling earnings.
Earnings are expected to fall 3.5% this year but it looks to be the bottom. Earnings are expected to rebound 49.7% in 2017.
Are Shares a Deal?
Shares are up off the lows but still well off their 5-year highs. They also haven't yet hit 2-year highs.
But even though earnings are turning around, the shares are rising faster than the estimates. The result is a forward P/E of 19.6, which is among the highest in the airline industry. Shares are not a deal here.
You will get a dividend, currently yielding 2.2%, for your troubles however.
But given the expected growth rate in Central America, Copa is definitely a company to keep on your short list if you're interested in investing in the region.
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Bear of the Day :
The Andersons, Inc. (Nasdaq:(ANDE - Free Report) – Free Report) continues to struggle as fertilizer prices and the agriculture sector remain in a recession. This Zacks Rank #5 (Strong Sell) is expected to see an earnings decline of 47% this year.
The Andersons was founded in 1947 by Harold Anderson in Maumee, Ohio with a single grain elevator. It has grown into an agribusiness company with numerous business segments across North America, including in grain, ethanol, plant nutrient, and consumer retailing.
It also has rail equipment leasing interests in Canada and Mexico.
Another Miss in the Third Quarter
It has been a rough time in the agriculture business. On Nov 7, The Andersons missed the Zacks Consensus Estimate for the fifth straight quarter reporting $0.06 versus the Zacks Consensus of $0.23.
While the company saw improving conditions in its Grain Group and strong margins in the Ethanol Group, the Plant Nutrient Group, which is the fertilizers, faced weak margins and the Rail Group continued to see softening in utilization.
In the third quarter, nutrient volumes fell as producers and dealers were reluctant to buy in a sustained falling price environment. Basically, if they thought they could get it cheaper at a later date, they would wait to buy.
Advance purchase activity also fell during the third quarter.
The Andersons expects the poor fertilizer conditions to persist throughout the fourth quarter.
In the Rail Group, North American rail traffic volume continued to fall year over year. The soft market conditions are placing pressure on lease renewal rates and railcar utilization levels.
Given the mixed news, the company has initiated a $10 million cost reduction plan in an effort to gain control in the uncertain business environment. It has also shut one of its retail stores and will now operate 2 stores in each of the Toledo and Columbus, Ohio markets.
Estimates Cut for 2016 and 2017
With the outlook for the fourth quarter still looking bleak, it's not surprising that the analysts cut their 2016 estimates.
The Zacks Consensus Estimate has fallen to $0.77 from $0.97 thirty days ago as 2 estimates were slashed. That's an earnings decline of 47.2% from 2015.
One estimate has also been cut in the last month for 2017 but the analysts still expect an earnings rebound. The Zacks Consensus is sitting at $1.92, an earnings gain of 151%.
Shares Not Cheap
Many believe that fertilizer prices have bottomed so investors have been buying into some of the agriculture stocks.
Despite falling earnings, The Anderson shares are up 23% year-to-date. It hasn't been a smooth ride higher, but investors are signaling the worst may be over.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
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