Bull of the Day: Copa Holdings (CPA)
Panama-based Copa Airlines CPA is a Zacks Rank #1 (Strong Buy) that offers airline passenger and cargo services via its main subsidiaries – Copa Airlines and Copa Colombia. Like most of the airline industry, Copa suffered from the effects of the COVID-19 pandemic and rising fuel costs but is turning the corner.
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Copa sports the best possible VGM score of A (combines Zacks Style scores into one: Value, Growth, Momentum). Over the past year, Copa Airlines has outperformed the the Transportation – Air Industry group by a wide margin. The company’s market cap (~$3.5 billion) is much smaller than that of its well-known competitors, such as Delta Airlines UAL (~$25 billion).
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Copa Airlines Company Profile
Copa Airlines was started in the late 1940s by a group of Panamanian investors. The company began its operations with small planes and domestic flights. By the 1970s, Copa airlines expanded into international flights and acquired large Boeing BA 737 jets. A major milestone occurred in 1998 when Continental Airlines, now part of United Airlines (UAL), purchased half of the company. When Copa became a public company, Continental divested a large portion of its holdings but still holds a stake in the company. Copa mainly services customers with flights across most Latin American destinations and has flights to the United States through its fleet of around 100 planes.
Earnings Are Flying High
Copa announced blockbuster earnings in its third-quarter report – earning $2.91 a share versus the $2.63 expected by Zacks Consensus Estimates. The $2.91 earned in the last quarter dwarfed the $0.06 earned in all of 2021 and marked a massive turnaround since losing $5.82 a share during the pandemic period of 2020. From a top-line perspective, Copa missed slightly, earning revenues of $809.4 million versus the Zacks Consensus Estimate of $816.2 million. Nevertheless, investors have taken on a glass-half-full view.
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Though Copa has endured several wrenches thrown at it in recent years (the pandemic, sky-high fuel prices etc), the company has consistently outperformed and beat Wall Street’s expectations. Out of the past 17 quarters, CPA has surpassed consensus expectations in 15 of them.
The Runway Ahead
While past earnings strength and consistency is a “nice to have,” Zacks research shows that earnings estimates moving forward are an integral factor in determining what comes next. Over the past 60 days, 2023 consensus estimates have gone from $9.54 to $10.34.
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Because of the recent positive revisions, CPA has a positive Earnings Expected Surprise Prediction score – suggesting that the company is once again expected to surprise to the upside when it reports earnings after the close on February 15th.
Chart Analysis
Like CPA’s fundamentals, its technicals paint a pretty picture. In November, the 50-day moving average crossed above the 200-day moving average, signaling a bullish Golden Cross. Since then, the stock has been stair-stepping higher, riding the 50-day moving average, and is forming a bull flag ahead of earnings.
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Outlook
Copa has all the ingredients a savvy investor looks for in a stock, including a stellar fundamental track record, strong estimates (and recently revised estimates higher), a reasonable valuation, high growth, and a uniform price trend. Tailwinds include lower fuel prices, a recovery in demand, and a strengthening macro environment. With all that considered, the stock offers both value and growth-oriented investors an attractive risk-reward zone. Investors interested in purchasing CPA can use the 50-day moving average as a risk guide.
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