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Copa Holdings (CPA) Up 28.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Copa Holdings (CPA). Shares have added about 28.7% 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.

Earnings Beat at Copa Holdings in Q1

Copa Holdings’ earnings earnings of $1.75 per share beat the Zacks Consensus Estimate by 19 cents. However, the bottom line fell 17.1% year over year primarily due to lower revenues. Quarterly revenues also declined 11.4% to $595.5 million, which beat the Zacks Consensus Estimate of $592.8 million. The downside was caused by 11.4% decrease in passenger revenues. Notably, passenger revenues contributed 96.5% to the top line in the reported quarter.

Operational Statistics

While passenger unit revenue per available seat mile (PRASM) ascended 3.5%, yield per passenger mile rose 5.8%. On a consolidated basis, traffic (measured in revenue passenger miles or RPMs) dropped 16.3% and capacity (or available seat miles/ASMs) slid 14.4% due to significant decline in travel demand due to COVID-19 pandemic. As capacity contraction was less than traffic plunge, consolidated load factor (% of seats filled with passengers) contracted 190 basis points to 81.5%. Meanwhile, unit revenue per available seat mile (RASM) increased 3.5%.

Total operating costs declined 11.2% to $496.5 million backed by lower capacity. Expenses on fuel declined 19.5% due to reduction in volume consumed and lower jet fuel prices.  Average fuel price per gallon declined 6.7% in the reported quarter to $1.95.  Expenses on wages, salaries and other employee benefits fell 3%. Adjusted operating cost per available seat mile (Adjusted CASM) increased 3.8% to 9 cents in first-quarter 2020. The metric excluding fuel costs increased 8% to 6.6 cents, mainly due to flight cancellations in March stemming from the COVID-19 outbreak. Moreover, the temporary grounding of the fleet from Mar 22 resulted in a significant year-over-year capacity reduction. The company expects to resume operations (on a scaled-down basis) from Jun 1. However, the date is tentative and could be pushed back in the event of further travel restrictions.

Other Details

The company exited the first quarter with cash and cash equivalents of $339.92 million compared with $158.73 million at 2019 end. Long-term debt declined to $907.9 million from $938.1 million at the end of 2019.

Due to COVID-19 pandemic uncertainties, on Apr 26, the company’s board of directors postponed dividend payments for the remaining quarters of 2020. The company ended the first 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 coronavirus-related uncertainties, the company did not provide financial guidance for 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -35.82% due to these changes.

VGM Scores

At this time, Copa Holdings has an average Growth Score of C, though it is lagging a bit on the Momentum Score front 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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