Copa Holdings: Cleared For Takeoff?

On a recent multi airline flight from Detroit to Panama to Honduras and back, I had the opportunity of flying Copa Airlines (NYSE:CPA), as well as other major Latin American airlines, like Taca. The trip down was to look at real estate opportunities. I have recently become very intimate with the growth in Panama. It’s true, the country is booming. All over the internet an investor can find proof that Panama’s economy is exploding. The main driver is the expansion of the Panama Canal, bringing in engineers in swarms as well as, I’m sure, hundreds of thousands of support jobs. To add to that growth, the US relatively recently returned control of the canal back to Panama. What this means is between $500M - $600M is being returned annually to the country. Keep in mind, Panama’s population is only 3.3 Million and 2/3 of the population allegedly lives on less than $200/month. The last two quantitative numbers are hear-say. However, I’ve been there and saw the poor parts, while I’ve stood on million dollar balconies overlooking the poor parts. As a result of the previously mentioned growth contributors, they are developing infrastructure at alarming rates. This economic boom is affecting everything in Panama’s economy, even airlines.

Copa Airlines operates its main hub from Panama’s only international airport, Tocumen International. They are flying 41 destinations in 21 countries and more than 108 flights daily. Employing more than 3,500 employees, founded in 1947, with a 1.62B Market Cap investors are down less than 1% YoY and down almost 50% since its 52 week high in July, around $73. The intriguing thing is it’s been upgraded almost all the way down; the trailing 12 month PE is 10.25 or $3.67 per share. Analysts are expecting them to earn $4.35 for FY2008 compared to $3.74 FY 2007. The growth outlook for the next 5 years is healthy, 15% at Yahoo, and 17% per annum at Morningstar. Analyst consensus has been on the low side for 4 quarters straight. You have to wonder how many of them have been to Panama? Here’s the punch line, Copa Holdings has increased traffic 15.2%, 19.9%, 19.9%, 19.6%, 15.8%, 13.1% for April, May, June, July, August, and September respectively.

All of these valuation facts, combined with the boom in Panama and the complete lack of bad news or rumors, make CPA a severely undervalued stock. Insider trading is non-existent, and funds are buying just as much as they are selling. The only thing likely keeping CPA from soaring is oil. The thing is, you have to think of their clientèle and whether or not they are going to flip the bill and keep flying. Business professionals like engineers, lawyers and bankers are the people who are primarily flying Copa. Investors can rest assured these clients are not going to notice a ticket price hike.

All of the above is why Copa Holdings is likely cleared for take-off.

Disclosure: As of today, I have a long position in CPA