Citi Upgrades Copa Airlines To Buy, Seeing Tactical Opportunity

Copa Holdings, S.A. CPA reported its 2Q adj. EPS a substantially ahead of expectations. Citi’s Stephen Trent upgraded the rating on the company from Neutral to Buy, while raising the price target from $68 to $88.

Copa’s unit revenue trends do not seem to be poised for a “straight-line recovery,” analyst Stephen Trent mentioned. Moreover, the company merely reiterated its full-year EBIT margin guidance at 11-13 percent, after having reduced it while reporting its 1Q16 results.

Trent added that it was hard to ignore:

• Copa’s significant adj. EPS beat in 2Q
• The carrier’s year-to-date dollar return of 36 percent, which was substantially below what its South American peers had experienced
• The high short interest levels in Copa’s shares

“For these reasons, we make a tactical upgrade of Copa Airlines from Neutral to Buy,” the analyst stated.

Weak Outlook, But Shares More Attractive

The market outlook was weak, with challenging RASM trends and “the carrier’s missteps on the deployment/redeployment of its Venezuela capacity appear to have contributed to Copa’s ca. 50% share price decline since mid-March 2014,” Trent said. He added, however, that since Copa’s RASM and capacity trends are likely to have stabilized to some extent over time, the risk-reward in the company’s shares now appear more attractive.

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