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Copa Holdings (CPA) Q4 Earnings: Is a Beat in the Cards?

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We expect Panama City-based, Copa Holdings (CPA - Free Report) to report better-than-expected earnings in the fourth quarter of 2016. The carrier will release its results on Feb 15, after the market closes.

In the third quarter, the carrier had delivered a positive earnings surprise of 1.56%. Quarterly earnings also increased 53% year over year. Quarterly revenues also improved 4% on a year-over-year basis to $569 million. Additionally, revenues beat the Zacks Consensus Estimate of $545 million. The year-over-year increase in the top line was primarily due to a 4.1% improvement in passenger revenues.

In fact, the company has an impressive history with respect to earnings per share. It surpassed the Zacks Consensus Estimate in each of the last four quarters with an average beat of 38.55%. The strong earnings performance is reflected in the carrier’s stock price movement. In the last one year, the stock returned almost 91%, comfortably outperforming the Transportation- Airline  industry’s gain of 27% in the period.

The optimism regarding the stock ahead of its fourth-quarter earnings release can be gauged by the 4% increase in the Zacks Consensus Estimate over the last month.

Our quantitative model shows that Copa Holdings is likely to beat earnings, because it has the perfect combination of two key ingredients.

Zacks ESP: The Earnings ESP for Copa Holdings is +10.77% with the Most Accurate estimate exceeding the Zacks Consensus Estimate of $1.30 by 14 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Copa Holdings carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement. But the combination of Copa Holdings’ Zacks Rank #2 and a positive ESP makes us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

We expect Copa Holdings’ fourth-quarter results to benefit from strong traffic growth. The carrier expects capacity to expand about 1.5% for full-year 2016. Moreover, operating margin for 2016 is projected in the band of 12% to 13%.

We are encouraged by the carrier’s efforts to expand its operations. In the fourth quarter, the carrier launched Wingo, a low-cost offering, designed to attract budget conscious travelers. Also, the carrier’s efforts to modernize its fleet is also encouraging.

Furthermore, the carrier’s efforts to reward its shareholders through dividend payments makes us hopeful. Copa Holdings' quarterly dividend of 51 cents per share ($2.04 on an annualized basis) currently yields 2.2%. The carrier had paid its dividend for the third quarter on Sep 15. The past records bear evidence of Copa Holdings’ stable dividend payment history. Despite a more stable foreign exchange scenario, competition in the Latin American aviation space from the likes of GOL Linhas and LATAM Airlines Group S.A. are likely to act as headwinds.

Copa Holdings, S.A. Price and EPS Surprise

 

Copa Holdings, S.A. Price and EPS Surprise | Copa Holdings, S.A. Quote

A Transportation Gem

In addition to Copa Holdings, investors interested in the broader transportation space may also consider the following stock as our model shows it possesses the right combination of elements to post an earnings beat this quarter.

FLY Leasing Limited has an Earnings ESP of +26.23% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Mar 9, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 36.49%.


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