We expect Panama City-based, Copa Holdings (CPA - Free Report) to report better-than-expected earnings in the first quarter of 2017. The carrier will release results on May 10, after the market closes.
In the fourth quarter of 2016, the carrier had delivered a positive earnings surprise of 5.19%. Quarterly earnings increased 94.5% year over year. Quarterly revenues improved 12.8% on a year-over-year basis to $601 million. Revenues beat the Zacks Consensus Estimate of $582 million.
The year-over-year increase in the top line was primarily due to a 12.8% 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 37.2%. The strong earnings performance is reflected in the carrier’s stock price movement. In the last one year, the stock returned more than 100%, comfortably outperforming the Transportation-Airline industry’s increase of 33.52% in the period.
The optimism regarding the stock before first-quarter earnings release can be gauged by the 1.17% increase in the Zacks Consensus Estimate over the last month.
Our quantitative model shows that Copa Holdings is likely to beat on earnings because it has the perfect combination of two key ingredients.
Zacks ESP: The Earnings ESP for Copa Holdings is +3.43% as the Most Accurate estimate exceeds the Zacks Consensus Estimate of $2.33 by 8 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, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
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’ first-quarter results to benefit from strong demand for air travel. The improving economic scenario in Latin America, should aid results in the first quarter. We expect total revenue per available seat miles (TRASM: a key measure of unit revenues) to improve in the first quarter.
We are encouraged by the carrier’s efforts to expand its operations. Copa Holding’s efforts to modernize its fleet is encouraging.
Furthermore, the carrier’s efforts to reward its shareholders through dividend payments raise optimism. Copa Holdings' quarterly dividend of 51 cents per share ($2.04 on an annualized basis) currently yields 1.67%. The carrier had paid its dividend for the first quarter on Mar 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 (GOL - Free Report) and LATAM Airlines Group S.A. are likely to act as headwinds.
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.
Gener8 Maritime , based in New York, is a leading provider of international seaborne crude oil transportation services. This Zacks Rank #3 company currently has an Earnings ESP of +6.98%. The Zacks Consensus Estimate for first-quarter earnings is pegged at 43 cents. The company will report its first-quarter 2017 results on May 9, before market opens.
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