On Friday, Morgan Stanley initiated coverage on Copa Holdings (NYSE:CPA) stock with an Overweight rating and set a price target of $140.00. The firm highlighted the airline's potential for an attractive upside to the price target and a compelling risk-reward profile, with a 3.1:1 bull to bear skew anticipated.
Copa Holdings, recognized as the only Full-Service Carrier (FSC) in Morgan Stanley's coverage, is expected to continue benefiting from strong demand for international travel and its premium service offerings.
The analyst noted that while medium to long-term risks exist due to delivery delays of Boeing (NYSE:BA) 737 MAX-9 aircraft, these are not expected to significantly impact earnings. The delays could, however, contribute to tighter capacity growth.
Copa Holdings is planning to expand its fleet by adding 66 Boeing 737 MAX aircraft between 2023 and 2028, which is projected to support growth and reduce Cost per Available Seat Mile (CASM).
According to Morgan Stanley's 2025 estimates for Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent costs (EBITDAR), Copa Holdings' stock is currently trading well below its pre-pandemic average of 7.3 times.
The firm's analysis suggests that the airline's CASM is expected to decrease from 9.6 cents in 2023 to 9.1 cents by 2028, with Available Seat Miles (ASMs) growing at a Compound Annual Growth Rate (CAGR) of 7% over the same period.
The optimistic outlook for Copa Holdings is supported by the anticipated growth in international travel demand and the airline's strategic fleet expansion. The addition of the Boeing 737 MAX aircraft is not only intended to bolster Copa's growth but also to enhance operational efficiency by lowering CASM, which is a key metric in the airline industry.
InvestingPro Insights
As Morgan Stanley initiates coverage on Copa Holdings with an optimistic outlook, real-time data from InvestingPro further enriches the narrative. With a market capitalization of $4.15 billion, Copa Holdings is trading at a low earnings multiple of 5.37, which underscores the firm's point about the stock trading below its pre-pandemic average. The airline's aggressive approach to share buybacks underscores management's confidence in the company's value proposition.
InvestingPro Data indicates a robust gross profit margin of 43.0% for the last twelve months as of Q1 2024, reinforcing the premium service offerings that Morgan Stanley attributes to the airline's success. Additionally, the dividend yield of 6.54% is a testament to the company's commitment to returning value to shareholders, which is significant in the current market environment. Despite some analysts revising earnings downwards for the upcoming period, Copa Holdings remains a prominent player in the Passenger Airlines industry with moderate levels of debt and profitability over the last twelve months.
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