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Copa (NYSE:CPA) is a leading Latin America airline, providing 144 daily flights to 45 destinations in 24 countries in North, Central and South America using its hub in Panama City. Copa is one of the most modern airlines in the LatAm region and one of the most profitable global airlines.

Growth: In the medium term, 17-19% capacity growth in 2011 and its intention to join Star Alliance in ealy 2012 are expected to drive growth. Longer term, a growing middle class in the Latin American markets is expected to contribute to increasing travel. In addition, growth to and from Brazil, since that country will host two major sporting events within the next five years: the 2014 FIFA World Cup and the 2016 Summer Olympics, will mean more connecting travel will be available, and Copa is positioned to gain some of that traffic.

Consensus expectations

2008a

2009a

2010e

2011e

2012e

Revenues (mn)

1,288.81

1,253.10

1,392.15

1,550.67

1,765.79

EBITDA (mn)

266.92

270.41

323.25

361.95

415.58

EPS

3.5

5.5

4.3

5.4

6.2

At its current price of $57 CPA is priced at 10.6x 2011e EPS, a 30%+ discount to LatAm peers. Thus there is a good chance for multiple expansion. Even without expansion, a 3-year (2010-12) EPS CAGR of ~ 20% provides an attractive return at a PE multiple of just over 10.

Relative Valuations

Company

Ticker

P / E

2010e

2011e

2012e

Copa

CPA.N

13.1x

10.6x

9.2x

LAN

LFL.N

22.3x

16.9x

13.2x

Latin American Peers

GOL

GOL.N

32.2x

13.4x

11.3x

TAM

TAM.N

8.6x

14.4x

11.2x

Lufthansa

LHAG.DE

10.9x

7.9x

6.8x

Ryanair

RYA.L

14.8x

9.9x

8.0x

Southwest

LUV.N

15.9x

17.0x

12.6x

Singapore Airlines

SIAL.SI

13.3x

10.5x

9.8x

Cathay Pacific

0293.HK

6.2x

8.8x

8.7x

13.3x

10.5x

9.8x

Wall Street Analyst views: Out of the 10 Analysts covering the stock, 4 analysts have it as a strong buy, 5 analysts have it as a buy and 2 analysts have it as a hold. Morgan Stanley's analyst has COPA as the top pick in airline coverage.

Risks: Major risks include:

  • Rising oil prices ( 22-25% hedged for the next twelve months of fuel usage)
  • Competition (primary competitor Avianca / TACA is also joining the Star Alliance), and
  • Unanticipated geopolitical events in the region
Source: COPA Holdings: 30% Discount to Latin American Airline Peers Offers a Buy Opportunity