Copa Holdings is the holding company of one of the fastest growing airlines in Central America.
Based in Panama with Panama City as its main hub, it services 69 destinations in 30 countries in North, Central and South America as well as the Caribbean. It operates a fleet of 90 aircraft.
Estimates Lowered on Venezuelan Fears
Venezuela is a big high margin market for Copa. But problems have been developing as Venezuela’s economy has weakened. Venezuela has been slow to repatriate Bolivar-denominated cash back to airlines.
By 2014, various airlines were owed over $3 billion. By the summer of 2014, Copa had nearly $500 million trapped in Venezuela.
With balances ballooning, many airlines decided to simply stop flying to Venezuela.
While Copa didn’t halt flights altogether, it drastically reduced capacity. Venezuelan sales were 15% of revenue in 2013 and with the capacity reductions, Copa expects them to be just 6% in 2014.
While the capacity can be allocated elsewhere on other routes, most of that will be lower margin which means it will hit earnings.
Based on margin concerns, the analysts have been lowering estimates over the last 2 months for both 2014 and 2015.
6 estimates have been lowered for 2014 in the last 60 days pushing the Zacks Consensus Estimate down to $10.57 from $11.58. That is earnings growth of just 0.3%.
Similarly, 5 estimates have also been lowered for 2015. Earnings are expected to grow just 6.4%.
Shares Sell Off
There has been a panic over the last 3 months as shares have sold off 18% and were recently trading at new 52-week lows.
But the company still had $622 million in cash on hand, excluding the cash in Venezuela, at the end of last quarter.
It’s also still expecting to grow capacity at 10% annually and is looking at 30 new markets in which to expand over the next several years.
Since the sell-off, shares have gotten cheap. They trade with a forward P/E of just 10.7.
But if you don’t want to wait around for the Venezuelan situation to work itself out, there are plenty of other airlines that don’t have the same problem including Southwest Airlines Co. (LUV – Analyst Report). Southwest is a Zacks Rank #1 (Strong Buy) and is expected to grow earnings by 58% this year.
[In full disclosure, the author of this article owns shares in CPA.]
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