Management at Copa Holdings (CPA) have burnished their reputation for operational excellence during the sharp pandemic-driven declines in air travel demand, as the company has tightened up spending and preserved liquidity to a greater extent than expected, and the June quarter showed unexpected operational upside as traffic begins to recover.
COVID-19 lingers on as a threat, though, and I believe that’s one of the major factors that has kept pressure on the shares in recent months – unlike Mexico’s Volaris (VLRS), which has been able to leverage recovering intra-country travel in Mexico (particularly tourist and family trips), Copa’s international routes remain heavily impacted by travel restrictions and reduced business activity.
I haven’t meaningfully changed my numbers since my last article, though Copa will come out of this downturn in better shape on cash/liquidity than I’d expected. I’m still anticipating a return to pre-pandemic revenue levels in mid-2024, with a 30% or better EBITDAR margin in 2023. With those inputs, I believe Copa remains substantially undervalued, with upside to $100/share or more once restrictions begin to lift.
Read the full article at Seeking Alpha:
Copa Holdings Continues To Execute Well, But COVID-19 Lingers On As A Threat
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