Copa Holdings S.A.: An Airline That's Growing....Profitably
- Price: $65
- Forward P/E: 8.75
- Earnings Growth: 42%
- Projected Sales Growth: 28.4%
- Market Cap: $2.9 billion
Why It's Featured: Earnings increased over last 3 years;revenues jumped 31% in the third quarter; high return on equity, operating and profit margins.
Danger Zones: Still relatively small; competition heating up.
Copa Holdings, S. A., (NYSE: CPA) through its subsidiaries Copa Airlines and Aero Republica, provides airline passenger and cargo services. The company offers air transportation services for leisure and business travelers; and cargo, which include freight, courier, and mail service.
It provides 160 daily scheduled flights for 45 destinations in 24 countries in North, Central, and South America; and the Caribbean. Aero Republica, the second largest domestic carrier in Colombia, serves 12 cities in Colombia as well as international connectivity. It has a strategic alliance with Continental Airlines, Inc. Copa Holdings, S.A. was founded in 1947 and is based in Panama City, Panama.
What caught my eye about CPA was its solid earnings growth. They advanced every year except one (2008) since the company went public in 2004, starting with $1.60. This year 15 analysts have a consensus estimate of $6.86 a share (up from $4.82 last year). For 2012, they see $7.44.
Revenues jumped by 31% in the third quarter to $476.8 million. Analysts see the year finishing at $1.81 billion, up 28.4% from last year's $1.41 billion. They see another 15% increase for 2012 to $2.08 billion. Sales are up because of higher demand and price increases. Because demand was more than capacity expansion, load factors are better. Profits also improved in spite of higher fuel costs, thanks to surcharges to passengers and more volume. Expect this trend of stronger revenues and profits to continue as passenger traffic shows no sign of slowing, and CPA offers more flights to more destinations.
CPA is expanding. In the third quarter, it took delivery of 5 new jets and will receive 2 more by the end of the month. It's also added 2 connecting banks and 4 new travel destinations to its Panama City headquarters hub. It will serve 5 new cities in December.
Latin America has good economic growth. That means rising personal income which translates into more passengers. It also means more freight deliveries for businesses as well as more travel for coporate executives. CPA is well positioned to serve these needs with its hub in Panama and many gates throughout the region.
From a financial viewpoint, things look solid as well. Debt is only 43% of capital, a number better than most of CPA's competitors. Cash flow is also strong and consistent. So much so that the company raised the dividend to $1.64 this year, up from $1.09 last year, a 50% boost. That dividend give s a yield of 2.5% and is paid in the second quarter, usually in June. This year, the stock went ex-dividend on May 26 and paid on June 14.
- Forward P/E: 8.7
- Price to sales ratio: 1.63
- Price to book: 2.27
- Operating margin: 22.62%
- Profit margin: 18.81%
- Return on equity: 29.91%
- Return on assets: 9.52%
- Total cash: 445.85 million
- Total cash per share: $10.07
- Total debt: $1.05 billion
- Debt to equity: 84%
- Current ratio: 1.06
- Book value per share: $28.21
- Beta: .98
- Change in last 52 weeks: 13.1%
- Shares Outstanding: 44.28 million
- Float: 33.01 million
- Held by insiders: 11.74%
- Held by institutions: 101%
- Dividend: $1.64
- Yield: 2.5%
- Payable in June.
Investors need to get comfortable with an airline that focuses on Latin America and all the volatility that implies before venturing further into CPA. But once past that hurdle, this company warrants time. It's growing revenues and profits, is expanding its fleet and geographic footprint, and is enjoying the current wave of economic growth the region affords. (For more stock ideas, see www.theonlineinvestor.com)
Company Web site: www.copaair.com
- Ted Allrich
December 8, 2011
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