UPDATE: Morgan Stanley Downgrades Copa Holdings, S.A. On Negative Margin Impact

In a report published Thursday, Morgan Stanley analyst Eduardo S. Couto downgraded the rating on Copa Holdings, S.A. CPA from Overweight to Equal-Weight, and lowered the price target from $163.00 to $142.00. In the report, Morgan Stanley noted, “We cut CPA's numbers to reflect a more negative margin impact from a ~50% capacity reduction in Venezuela. We assume 15.8% EBIT margin in the 2H14e and 17.5% in 2015e (down from 18% and 20% previously). Our CPA route analysis since mid-2013 (see pages 6-7) shows a ~50% cut in Venezuelan capacity, redeployed to other countries in South (Brazil, Chile, Peru), Central (Costa Rica, Nicaragua, Cuba, Dominican Republic), and North America (Mexico, US, Canada). Despite successful capacity relocation, we see a negative margin impact on CPA, with lower Venezuela sales given its higher fares and positive FX translation at the official rate. With lower earnings/margins next year, we see limited catalysts for CPA, despite an attractive 13x P/E.” Copa Holdings, S.A. closed on Wednesday at $123.17.