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Copa Holdings (CPA) Q2 Earnings: Another Beat in Store?

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We expect Panama City-based, Copa Holdings (CPA - Free Report) to report better-than-expected earnings in the second quarter of 2017 on Aug 9, after the market closes.

Last quarter, the carrier had delivered a positive earnings surprise of 6.11%. Earnings were also well above the year-ago figure of $1.66. Quarterly revenues improved 10.6% year over year to $617 million. The top line surpassed the Zacks Consensus Estimate of $615 million.

The year-over-year increase in the top line was primarily owing to a 10.9% 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 33.65%.

The strong earnings performance is reflected in the carrier’s stock price movement. The stock has surged 68.8% in the last one year, comfortably outperforming its industry’s gain of 39.7%.

 

 

The optimism regarding the stock before second-quarter earnings release can be gauged by 15.7% upward revision of the Zacks Consensus Estimate in the last three months.

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: Copa Holdings has an Earnings ESP of +4.29% as the Most Accurate estimate exceeds the Zacks Consensus Estimate of $1.40 by 6 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.

The combination of Copa Holdings’ favorable Zacks Rank and a positive ESP makes us reasonably confident of an earnings beat.

Copa Holdings, S.A. Price and EPS Surprise

 

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

What is Driving the Better-than-Expected Earnings?

We expect Copa Holdings’ second-quarter results to benefit from strong demand for air travel. Passenger revenues per available seat miles (PRASM: a key measure of unit revenue) and yields are expected to improve in the quarter.

Also, the improving economic scenario in Latin America might aid results in the to-be-reported quarter. We are encouraged by the carrier’s initiatives to expand its operations and modernize its fleet.

Furthermore, the carrier’s efforts to reward its shareholders through dividend payments raise optimism in the stock. Copa Holdings' quarterly dividend of 51 cents per share ($2.04 on an annualized basis) currently yields 1.62%. In fact, the carrier had paid its dividend for the second quarter on Jun 15. Notably, the past records bear evidence of Copa Holdings’ stable dividend payment history.

Despite the above positives, competition from the likes of GOL Linhas (GOL - Free Report) and LATAM Airlines Group S.A. (LTM - Free Report) in the Latin American aviation space may hurt second-quarter results at Copa Holdings.

A Transportation Gem

Besides 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.

Star Bulk Carriers Corp. (SBLK - Free Report) is a Greece-based leading global shipping company in the dry bulk sector. The carrier has an Earnings ESP of +20% and Zacks Rank #3.  It is scheduled to reveal second-quarter results on Aug 8.

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