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Copa Holdings Rides on Low Fuel Cost, Weak Travel Demand Hurts

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We recently issued an updated report on Copa Holdings, S.A. (CPA - Free Report) .

The current scenario of low fuel costs is a positive for the company. Evidently, average fuel cost per gallon declined 6.7% to $1.95 in the March-end quarter. Additionally, expenses on fuel declined 19.5% year over year in the first quarter due to reduction in volume consumed and lower jet fuel prices.

Moreover, Copa Holdings’s strong liquidity position looks impressive. Copa Holdings exited first-quarter 2020 with total cash, cash equivalents and short-term investments of $1,012.6 million.  This is much higher than the current maturities of long-term debt figure of $261.2 million. This indicates that the company has enough cash to meet its debt burden.

Meanwhile, like other carriers, Copa Holdings is bearing the brunt of plummeting air-travel demand due to the COVID-19 pandemic. With declining passenger revenues (comprising of majority of the top line), total revenues too declined in the first quarter. This bleak scenario is likely to hurt second-quarter results too.

Also, increase in non-fuel unit costs (up 8% in first-quarter 2020) on account of lower capacity mainly due to flight cancellations in March due to the COVID-19 outbreak hurt the company. Moreover, the temporary grounding of the fleet from Mar 22 resulted in a significant year-over-year capacity reduction. The company expects to resume operations (on a scaled-down basis) tentatively from Jun 1. Moreover, increase in non-fuel unit costs are likely  to limit bottom-line growth going forward.

Zacks Rank & Key Picks

Copa Holdings currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Transportation sector are Scorpio Tankers Inc. (STNG - Free Report) , Teekay Tankers Ltd. (TNK - Free Report) and Nordic American Tankers Limited (NAT - Free Report) . Scorpio Tankers and Teekay Tankers sport a Zacks Rank #1 (Strong Buy), while Nordic American Tankers carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for The Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.

The Teekay Tankers stock has seen the Zacks Consensus Estimate for current-year earnings being revised upward by 53.4% in the past 60 days.

The Zacks Consensus Estimate for Nordic American Tankers’ current-year earnings has been revised upward by 36.9% in the past 60 days.

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