Copa Shares Snap Back As The Street Is Reminded Of The Strong Cost Story

Copa’s (CPA) low $70’s share price around Christmas of 2018 will probably go down in my annals of “shouda, couda, wouda”, and maybe ought to serve as a reminder to use a more compelling alert/reminder system. Anyway, while this Latin American airline’s shares had been drifting since February, the shares rebounded strongly after first quarter earnings, as management once again demonstrated its proven (but still occasionally overlooked) cost management ability and maintained a fairly benign outlook for the business, as well as reiterating some encouragement about the Brazilian market later this year.

I still believe Copa is undervalued and buyable here. There are risks that Brazil won’t recover as quickly or as strongly as hoped, and that’s likewise true for Argentina, but I believe the company has been operating well even with things as they are. With a very strong network and operating plan in place, I believe mid-single-digit revenue growth can drive high single-digit EBITDAR growth and support a fair value around $100.

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Copa Shares Snap Back As The Street Is Reminded Of The Strong Cost Story

Turbulence Still Hitting Copa Holdings Hard

One of the last things I said about Copa Holdings (CPA) in my last article on the company was that "adverse forex and higher fuel costs could get worse before they get better", and those twin headwinds are primarily responsible for another 5% decline in the share price since the time of that article. What's more, management's recent investor day offered up a lot of evidence to support a "soft" guidance reduction for the second half of the year - in other words, investors shouldn't be surprised to see some weakness in the third quarter results and some downward margin guidance for the fourth quarter.

It's tough to recommend a stock while expectations are still moving down, particularly when sector valuations are generally predicated on the next 12 months' financial performance. I don't think Copa is the greatest idea out there for investors who need a quick gain and/or who can't or won't accept near-term losses for longer-term gains. On a longer-term basis, though, I continue to believe the valuation is pretty interesting and even those investors not willing to accept the risks and uncertainties today should keep a closer on this one for signs of stabilization over the next three to six months.

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Turbulence Still Hitting Copa Holdings Hard

Copa Dinged By Some Macro And Competitive Worries, But Still Operationally In Good Shape

Although a well-run company, Copa Holdings (CPA) is the sort of stock that's more likely than not to give investors multiple second chances. Between exposure to a host of Latin American economies, oil prices, and the often irrationally competitive airline industry, even a well-run airline like Copa is going to have its challenges. And so, it seems to be now, as the shares have slid about 15% from the time of my last article and underperformed over the past year or so due to worries about increasing low-cost competition, increasing oil prices, and issues related to Venezuela.

Copa is never going to be a "safe stock", but the combination of growing demand, growing capacity and pricing, and good cost control seem like one that should work well. With that, I think this is a name to consider for investors who can stomach the elevated risk and volatility.

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Copa Dinged By Some Macro And Competitive Worries, But Still Operationally In Good Shape

Seeking Alpha: Copa Holdings Looks Undervalued, But Its Markets Likely Haven't Bottomed

Copa Holdings (NYSE:CPA) and Alaska Air (NYSE:ALK) make for an interesting study in contrasts. Both are well-run airlines by most of the metrics that matter, but they operate in very different markets. While Alaska Air continues to benefit from a benign-to-healthy U.S. airline industry environment, Copa is getting crushed by economic turbulence in major markets like Brazil, Venezuela, and Colombia. Since the time of my last article on Copa, the shares have fallen more than 40% while Alaska Air's shares have climbed nearly 25%. That Copa has outperformed GOL (NYSE:GOL) and Avianca (NYSE:AVH) is true, but doesn't put any money back into shareholders' pockets.

I do believe that the current share price discounts the long-term value of Copa, but it's hard to make money in the midst of weak reported results and lower expectations. Likewise, it's worth at least asking why investors should expect any meaningful turnaround in Brazil, Venezuela, or Colombia in the near term, as these are all commodity-driven markets that need a combination of higher oil, base metal, and agricultural prices to lead a turnaround.

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Copa Holdings Looks Undervalued, But Its Markets Likely Haven't Bottomed

Seeking Alpha: Copa Holdings Battered And Bruised By Brazil's Malaise

Maybe the nicest thing I can say about Copa Holdings (NYSE:CPA) is that in the roughly nine months since I last wrote about the stock, its Latin American peers including Gol Airlines (NYSE:GOL), LATAM Airlines (NYSE:LFL), and Avianca (NYSE:AVH) all managed to do worse in terms of stock price performance. Then again, the fact that one stock was down about 33%, another down about 44%, and the last about 63% doesn't really lessen the sting of seeing Copa decline about 30% in value.

Copa has been thumped as investors have fled Latin American airlines on growing yield concerns in Brazil, Colombia, and Chile as commodity-driven exports show no particular signs of strength and averse currency moves weaken the local economies. I still believe that Copa is a good property, but the quality of a house is somewhat moot when investors won't go near the neighborhood. Like many other Latin American stories, I see value in Copa today but you have to have a high risk threshold to own it and there is most definitely a risk that conditions will get worse before they get any better.

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Copa Holdings Battered And Bruised By Brazil's Malaise

Investopedia: A Great Model And Growing Markets Powering Copa Holdings

This year has turned into a challenging one for emerging market investors, as China remains weak (at least relatively so), Brazil and Mexico seem to be turning in the wrong direction, and multiple Southeast Asian markets sell off on macroeconomic worries. Even so, business continues on at Copa Holdings (NYSE:CPA), where a strong and savvy business plan has led this Latin American airline to not only strong margins and good growth, but solid prospects for the coming years.

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