Copa Holdings (CPA) strong liquidity aids, high fuel cost issues


Copa Holdings, SA CPA currently enjoys strong liquidity among other factors. However, rising fuel prices and weak traffic in May 2022 are worrying.

Copa Holdings reported first-quarter 2022 earnings (excluding 23 cents of one-time items) of 70 cents per share, which beat Zacks’ consensus estimate of 36 cents. Quarterly revenue of $571.6 million beat Zacks’ consensus estimate of $566.1 million and was up significantly year-over-year, driven by improved travel demand by plane.

How is Copa Holdings doing?

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 the ACP has sufficient liquidity to meet its short-term debt obligations. The current CPA ratio at the end of the first quarter was 1.10. A current ratio greater than 1 implies that the company has sufficient financial resources to remain solvent in the short term.

CPA operating expenses have fallen significantly, partially offsetting coronavirus issues. In the first quarter of 2022, total operating expenses decreased by 5.8% compared to actual expenses in the first quarter of 2019. Passenger services expenses decreased by 39% on a year-over-year basis year. Spending on wages, salaries and other benefits fell by 21% during the said period due to a decline in the workforce. Flight operating costs also decreased by 14.8%.

Escalating oil prices do not bode well for Copa Holdings’ bottom line, as fuel expenses represent one of the major input costs for the carrier. The average fuel price per gallon jumped 37.4% from the same period in 2019 to 2.87 cents.

Copa Holdings’ traffic, measured in revenue passenger miles (RPM), fell 4.2% to 1.72 billion in May 2022 from the comparable period level in 2019. The decline was primarily due to the decline in demand for air travel induced by the coronavirus compared to the pre-pandemic period. levels (2019). Due to tepid demand, capacity – measured in available seat miles (ASM) – fell 3.7% from the 2019 level of 2 billion. With the decline in traffic greater than the contraction in capacity, the load factor (percentage of seats occupied by passengers) deteriorated by 40 basis points (bps) to 85.7% in May.

Zacks ranking and key picks

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

Some Higher-Ranking Stocks in the Broader Zacks Transportation sector are Ryder System, Inc. R, CH Robinson Worldwide, Inc. CHRW and GATX Corporation GATX.

Ryder has a trailing four-quarter surprise of 48.2%, on average, as its earnings have exceeded Zacks’ consensus estimate for the past four quarters. R benefits from improving economic and freight conditions in the United States. Revenues from all segments increased (thanks to higher rental income, new business and favorable pricing) in the first quarter of 2022.

R currently sports a Zacks Rank #1.

The expected long-term (three to five year) growth rate of earnings per share (EPS) for CH Robinson is set at 9%. Improved freight market conditions are helping CHRW. In the first quarter of 2022, revenue improved by 41.8% thanks to favorable truckload prices for customers and healthy profits in ocean freight.

Driven by the positives, the stock has edged up 2.1% over the past year. CHRW currently wears a Zacks Rank #2 (Buy).

GATX has a trailing four-quarter surprise of 40.1%, on average, as its earnings have exceeded Zacks’ consensus estimate for the past four quarters. The gradual improvement in the North American railcar rental market is a huge plus for GATX.

Buoyed by the upside, the stock has risen 8.9% over the past year. GATX currently has a Zacks rank of 2.

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