Why Is Copa Holdings (CPA) Down 54.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Copa Holdings (CPA). Shares have lost about 54.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Copa Holdings due for a breakout? 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 drivers.

Earnings Beat at Copa Holdings in Q4

Copa Holdings’ earnings of $2.17 per share (excluding $2.11 from non-recurring items) beat the Zacks Consensus Estimate by 19 cents. Moreover, the bottom line surged more than 100% year over year primarily owing to higher revenues and low fuel costs. Quarterly revenues also increased 3.9% to $681.9 million, which beat the Zacks Consensus Estimate of $666.9 million. The uptick can be attributed to a 4.1% increase in passenger revenues. Notably, passenger revenues contributed 96.45% to the top line in the reported quarter.

Operational Statistics

While passenger unit revenue per available seat mile (PRASM) ascended 9.2%, yield per passenger mile rose 6%. On a consolidated basis, traffic (measured in revenue passenger miles or RPMs) dipped 1.7% and capacity (or available seat miles/ASMs) slid 4.6% due to the MAX groundings in the December-end quarter. As capacity contraction was more than traffic plunge, consolidated load factor (% of seats filled with passengers) improved 250 basis points to 85.3%. Meanwhile, unit revenue per available seat mile (RASM) increased 8.9%.

Average fuel price per gallon declined 9.2% in the reported quarter to $2.16. However, operating cost per available seat mile (CASM), excluding special Items (adjusted CASM) increased 1.4% to 9.3 cents in fourth-quarter 2019. The metric excluding fuel costs increased 6.4% to 6.6 cents, mainly due to lower capacity as well as expenses associated with the Boeing (NYSE:BA) MAX fleet grounding. With the ongoing groundings, the company removed all MAX flights from its schedule until the end of August 2020.

Liquidity

The company exited the year with cash and cash equivalents of $158.73 million compared with $156.16 million at 2018 end. Long-term debt declined to $938.2 million from $975.3 million at the end of 2018.

Fleet Update

Copa Holding ended the year with a consolidated fleet of 102 aircraft — 6 Boeing 737MAX 9s, 68 Boeing 737- 800s, 14 Boeing 737-700s and 14 Embraer 190s.

Outlook for 2020

Even after prolonged period of MAX groundings, Copa Holdings now anticipates capacity to inch up 1% year over year compared with 2.7% decline in 2019. However, with modest fuel prices and the rising revenue trends, the company expects operating margin in the range of 18-20%. Notably, the company’s operating margin in 2019 was 16.1%. Meanwhile, the effective price per gallon of jet fuel (inclusive of into-plane costs) is projected at $1.95.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.22% due to these changes.

VGM Scores

At this time, Copa Holdings has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Copa Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.