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Copa Holdings' (CPA) Solid Liquidity Aids, High Fuel Cost Ails

·4 min read

Copa Holdings, S.A. CPA currently benefits from strong liquidity among other factors. However, escalating fuel prices and weak May 2022 traffic are worrisome.

Copa Holdings reported first-quarter 2022 earnings (excluding 23 cents from non-recurring items) of 70 cents per share, which surpassed the Zacks Consensus Estimate of 36 cents. Quarterly revenues of $571.6 million outperformed the Zacks Consensus Estimate of $566.1 million and rose significantly year over year, thanks to an improvement in air-travel demand.

How is Copa Holdings Faring?

Copa Holdings’ liquidity position is encouraging. The carrier exited the first quarter of 2022 with cash and cash equivalents of $1,020.1 million, higher than its current debt level of $151.2 million. This implies that CPA has enough cash to meet its short-term debt obligations. CPA’s current ratio at the end of the first quarter was 1.10. A current ratio of more than 1 implies that the company has sufficient financial resources to remain solvent over the short term.

CPA’s operating expenses decreased substantially, partly offsetting coronavirus-led woes. In the first quarter of 2022, total operating expenses declined 5.8% from the first-quarter 2019 actuals. Passenger servicing expenses declined 39% on a year-over-two-year basis. Expenses pertaining to wages, salaries and other employee benefits dropped 21% in the said time period due to a lower headcount. Flight operation costs also fell 14.8%.

Escalation in oil price does not bode well for Copa Holdings’ bottom line as fuel expenses represent one of the major input costs for the carrier. Average fuel price per gallon surged 37.4% from the same-period level in 2019 to 2.87 cents.

Copa Holdings’ traffic, measured in revenue passenger miles (RPMs), declined 4.2% to 1.72 billion in May 2022 from the comparable period’s level in 2019. The downside was primarily due to coronavirus-induced lower air-travel demand than the pre-pandemic levels (2019). Due to tepid demand, capacity — measured in available seat miles (ASMs) — fell 3.7% from the 2019 level to 2 billion. With traffic declining more than the amount of capacity contraction, load factor (percentage of seats filled with passengers) deteriorated 40 basis points (bps) to 85.7% in May.

Zacks Rank & Key Picks

Copa Holdings currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Transportation sector are Ryder System, Inc. R, C.H. Robinson Worldwide, Inc. CHRW and GATX Corporation GATX.

Ryder has a trailing-four quarter surprise of 48.2%, on average, with its earnings having surpassed the Zacks Consensus Estimate in all the last four quarters. R is benefiting from improving economic and freight conditions in the United States. Revenues in all segments grew (on higher rental revenues, new business and favorable pricing) in first-quarter 2022.

R currently sports a Zacks Rank #1.

The expected long-term (three-to-five years) earnings per share (EPS) growth rate for C.H. Robinson is pegged at 9%. Improving freight market conditions are aiding CHRW. In first-quarter 2022, the top line improved 41.8% owing to favorable truckload pricing for customers and handsome profits in ocean freight.

Driven by the positives, the stock has inched up 2.1% in the past year.  CHRW currently carries a Zacks Rank #2 (Buy).

GATX has a trailing-four quarter surprise of 40.1%, on average, with its earnings having surpassed the Zacks Consensus Estimate in all the last four quarters. The gradual improvement in the North American railcar leasing market is a huge positive for GATX.

Driven by the upsides, the stock has risen 8.9% in the past year.  GATX currently has a Zacks Rank of 2.

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C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
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