Deutshce Bank: Copa Holdings S.A. Can't Beat Venezuela Head Winds

Copa Holdings S.A.'s

profit margin will continue to narrow as a result of difficult operating conditions in Venezuela, an analyst said Monday. Deutsche Bank's Michael Linenberg cut his rating on the Panama-based airline to Hold, from Buy, saying the shares are fully valued. Copa recently cut its capacity in half recently in Venezuela, where annual inflation rate is running at 63 percent, and the economy is hamstrung by complex foreign-exchange controls and nationalizations imposed by a socialist government. Linenberg said Copa's Venezuelan capacity has been diverted to slow-growth markets, further diminishing its revenue growth. "Lower fuel prices are helping, but not enough to offset all of the headwinds," Lunenberg said. The company recently posted a 47 percent decline in third-quarter income on a 2 percent drop in revenue. Copa's recent operating margin fell 510 basis points to 16.7 percent and the company forecast a 2015 margin of between 15 percent and 17 percent. The company's recently announced $250 million buy-back plan amounts to 5 percent of its market capitalization, according to Lineberg. "But it may not amount to much for the stock in the near-term," according to Lineberg, who nonetheless called Copa among "the best-managed and most profitable global airlines." The U.S. State Department said recently it won't oppose moves in Congress to impose additional sanctions on Venezuela, in light of alleged human rights abuses during a wave of anti-government demonstrations earlier this year. The State Department earlier this year imposed travel bans on Venezuelan officials accused of the abuses.