Copa Airlines Stock: Taking Off Despite Turbulence

The value of Copa Holdings, S.A. (NYSE: CPA) shares will depend on investors' estimates and the confidence they place in the company and the airline industry, considering the turbulent scenario presented by the increase in fuel prices. Copa reported its 1Q22 results, with adjusted EBITDA of USD 108 million (compared to - USD 18 million in 1Q21), which was above Bloomberg's consensus of +151TP3Q.

The company delivered an adjusted operating margin of +8% in 1Q, a figure 2% above the margin the company gave as guidance in the 4Q21 release. This thanks to stronger-than-expected unit revenues (only 3% below 1Q19 levels) and lower-than-expected non-fuel CASM (Cost per available seat), which is 2% below pre-crisis levels, partially offsetting the higher fuel CASM.

Copa Airlines' 2Q22 Outlook

For 2Q22, the company has announced that it expects capacity to be 96% from 1Q19 levels and operating margin to be between 3-5% (vs. consensus of 9%), with unit revenue of 11.3 cents and ex-fuel unit cost of 6 cents.

Also, the company expects to operate 98% of 2019 ASMs (Available Seat Miles) in fiscal 2022 and deliver a non-fuel CASM of 5.9 cents on the dollar. The company attributes the lower margin outlook for 2Q to the significant increase in jet fuel prices in a quarter that is seasonally weaker historically.

• Fleet: Copa closed the quarter with a consolidated fleet of 93 aircraft, 68 Boeing 737-800 and 16 Boeing 737 MAX 9 and 9 Boeing 737-700;
• Liquidity: the company closed the quarter with USD 1.2 billion of available liquidity. As a result, it has the lowest Net Debt to EBITDA ratio among its peers at 1.8x for 2022e.
• Low cost structure: The company guided an ex-fuel CASM of less than 6 cents on the dollar for 2Q22, which in our view, supports management's significant efforts to exit the pandemic with a leaner cost structure. In fact, prior to the pandemic, its record full-year nonfuel unit cost without fuel was 6.07 cents in 2018, while for 2022 and 2023 we expect 5.9 and 6 cents, respectively. Therefore, we expect margins to increase to 13.7 % and 14.5 % by 2022 and 2023e, respectively.

Cup today

Copa currently has a 12-month price target of USD 101.73 and a 67% buy recommendation, with 0% sell recommendations. Among the highlights we can mention the following opinions from some major investment banks: