Copa Holdings' 15% Decline Is Just The Beginning, Stifel Says In Downgrade

Latin American airliner Copa Holdings, S.A. CPA's stock lost 15 percent through Thursday after the company's second-quarter results and guidance, but Stifel said in a downgrade note that investors should expect even more downside.

The Analyst

Stifel's Joseph DeNardi downgraded Copa Holdings from Hold to Sell with a price target lowered from $100 to $70.

The Thesis

Copa Holdings reported a top-and-bottom-line miss in Q2 and lowered its 2018 earnings per share guidance by 15 percent, DeNardi said in the downgrade note.

The airline's revenue per available seat mile guidance also implies a very low single-digit decline in the third quarter and a flat figure in the fourth quarter, the analyst said. While Copa expects industry capacity growth to moderate from a mid-to-high-teens range to a mid-single-digit rate, it is unlikely to be sufficient to offset RASM pressures, he said. 

Copa's exposure to oil-rich South American countries could result in improved economic growth and better demand, DeNardi said — but if the company saw signs of this tailwind playing out now, it would have been better reflected in its guidance. Instead, any benefits from oil prices are likely to materialize next year, he said. 

Finally, the company deserves credit for delivering lowering its cost per available seat mile by 2 percent year-over-year, and this favorable trend could continue into next year, DeNardi said. If revenue were to soften relative to expectations and guidance, the company would have few opportunities to lower its CASM even more, he said. 

Price Action

Copa Holdings shares were trading down 2.37 percent to $81.95 off the open Friday. 

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Photo by Alan Wilson via Wikimedia.