Despite the macroeconomic uncertainty, air travel bounced back strongly in 2022. According to an International Air Transport Association (IATA) survey, revenue passenger kilometers (RPK) rose 64.4% year-over-year in 2022.
IATA Director General Willie Walsh said, “The industry left 2022 in far stronger shape than it entered, as most governments lifted COVID-19 travel restrictions during the year, and people took advantage of the restoration of their freedom to travel.”
According to Transportation Security Administration data, the number of people traveling by airplane in 2023 is on par with the pre-pandemic levels.
Headquartered in Panama, Copa Holdings, S.A. (CPA) provides passenger and cargo services to countries in North, Central, and South America and the Caribbean. In the third quarter, the company beat the consensus EPS estimate by 8.5% but missed the revenue estimate by 1.4%.
In comparison to December 2019, CPA’s available seat miles (ASM) and revenue passenger miles (RPM) rose 7.7% and 6.1%, respectively, in December 2022. However, its load factor in December 2022 was 1.3 percentage points lower than in December 2019.
In addition, CPA’s available seat miles (ASM) and revenue passenger miles (RPM) in the third quarter rose 6.5% and 9.1% sequentially, respectively. In the third quarter, the company took delivery of a Boeing 737 Max 9 aircraft, ending the quarter with a consolidated fleet of 95 aircraft. CPA expects to finish the fiscal year with 97 aircraft.
Its average aircraft utilization in the third quarter rose 2.9% sequentially, and the company’s load factor increased 2.1 percentage points sequentially. In addition, its revenue passengers onboard increased 10.4% sequentially to 4.19 million.
The company expects an operating margin of approximately 22% in the fourth quarter and its capacity to reach approximately 6.5 billion ASMs. For fiscal 2023, CPA expects its capacity to increase by approximately 15% compared to 2022.
The stock has gained 31% in price over the past nine months and 10.7% over the past year to close the last trading session at $92.97. Wall Street analysts expect the stock to hit $128.57 in the near term, indicating a potential upside of 38.3%.
Here’s what could influence CPA’s performance in the upcoming months:
Robust Financials
CPA’s total operating revenue increased 81.9% year-over-year to $809.45 million for the third quarter ended September 30, 2022. Its adjusted operating profit rose 195.6% from the prior-year quarter to $143.69 million. The company’s adjusted net profit increased 284.3% year-over-year to $115.06 million.
In addition, its adjusted EPS came in at $2.91, representing an increase of 315.7% year-over-year.
Favorable Analyst Estimates
Analysts expect CPA’s EPS for fiscal 2022 to increase significantly year-over-year to $8.08. Its revenue for fiscal 2022 is expected to increase 92.7% year-over-year to $2.91 billion. Its EPS and revenue for fiscal 2023 are expected to increase 31.6% and 18% year-over-year to $10.64 and $3.43 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.
Discounted Valuation
In terms of forward non-GAAP P/E, CPA's 11.40x is 36.6% lower than the 17.99x industry average. Its forward P/S of 1.25x is 12.9% lower than the 1.44x industry average. Also, the stock's 6.54x trailing-12-month EV/EBITDA is 43% lower than the 11.47x industry average.
High Profitability
In terms of trailing-12-month EBIT margin, CPA’s 14.54% is 50.1% higher than the 9.69% industry average. Likewise, its 23.39% trailing-12-month EBITDA margin is 79% higher than the industry average of 13.06%. Furthermore, the stock’s 5.20% trailing-12-month levered FCF margin is 64% higher than the industry average of 3.17%.
POWR Ratings Show Promise
CPA has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CPA has an A grade for Quality, in sync with its high profitability.
It has a B grade for Growth, consistent with its high solid financial growth.
CPA is ranked #6 out of 29 stocks in the Airlines industry. Click here to access CPA’s Value, Momentum, Stability, and Sentiment ratings.
Bottom Line
CPA’s shares are trading above their 50-day and 200-day moving averages of $86.72 and $74.50, respectively, indicating an uptrend. CPA is expected to benefit from the resumption of leisure travel and business trips. The company expects a strong 2023, with its capacity expected to rise approximately 15% year-over-year.
Given its robust financials, favorable analyst estimates, high profitability, and solid growth, it could be wise to buy the stock now.
How Does Copa Holdings, S.A. (CPA) Stack up Against Its Peers?
CPA has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Airlines industry with an A (Strong Buy) or B (Buy) rating: Deutsche Lufthansa AG (DLAKY), Air France-KLM SA (AFLYY), and Singapore Airlines Limited (SINGY).
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CPA shares were unchanged in premarket trading Wednesday. Year-to-date, CPA has gained 11.78%, versus a 8.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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