A month has gone by since the last earnings report for Copa Holdings (CPA). Shares have added about 12.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Copa Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Copa Holdings Incurs Loss in Q2
Copa Holdings incurred a loss (excluding $6.38 from non-recurring items) of $2.7 per share in second-quarter 2020, narrower than the Zacks Consensus Estimate of a loss of $3.38. In the year-ago quarter, the company reported earnings of $1.2 per share.
Thanks to coronavirus-led travel restrictions, the company could not operate scheduled commercial flights during the second quarter. Instead it operated a small number of charter and humanitarian flights, representing less than 1% of second-quarter 2019’s capacity. Due to this limited flying, Copa Holdings did not provide certain financial ratios, unit metrics and operational indicators this time, since they were either not measurable or applicable in such a scenario.
Quarterly revenues of $14.5 million beat the Zacks Consensus Estimate of $14.4 million. However, the top line plunged 97.7% year over year with passenger revenues (accounted for 74.2% of the top line) declining 98.3%.
On a consolidated basis, traffic (measured in revenue passenger miles or RPMs) dropped 99.7% and capacity (or available seat miles/ASMs) declined 99.5%. Travel restrictions due to coronavirus concerns forced the company to reduce capacity dramatically. As traffic decline was more than the amount of capacity contraction, load factor (% of seats filled with passengers) decreased in the reported quarter.
Total operating expenses declined 33.8% year over year to $372.41 million, backed by lower capacity among other factors. Expenses on fuel fell 99.9% due to reduced fuel consumption and low jet fuel prices. Expenses on wages, salaries and other employee benefits decreased 64.7% due to temporary work-contract suspensions, voluntary pay cuts and work-hour reductions for employees.
Copa Holdings exited the second quarter with cash and cash equivalents of $307.3 million compared with $158.73 million at 2019 end. Total debt at the end of the second quarter was $1.3 billion. The company repaid $95 million in short-term lines of credit.
This company ended the second quarter with a consolidated fleet of 102 aircraft – 6 Boeing 737MAX9s, 68 Boeing 737-800s, 14 Boeing 737-700s, and 14 Embraer-190s.
Due to rising coronavirus cases, the Panamanian government has extended air-travel restrictions through Aug 21, 2020. Hence the company now expects to resume operations (on a scaled-down basis) from Sep 4, 2020. During the first-quarter earnings release, management stated that the company is expected to restart commercial operations from Jun 1.
With the initial start of operations, the carrier’s capacity is estimated to be less than 10% of its 2019 level. This could gradually increase to up to 30-40% by the end of this year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -16.13% due to these changes.
Currently, Copa Holdings has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Copa Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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