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Copa Holdings Rides on Low Fuel Cost, Weak Travel Demand Hurts

Zacks

We recently issued an updated report on Copa Holdings, S.A. CPA.

The current scenario of low fuel costs is a positive for the company. Evidently, average fuel cost per gallon declined 6.7% to $1.95 in the March-end quarter. Additionally, expenses on fuel declined 19.5% year over year in the first quarter due to reduction in volume consumed and lower jet fuel prices.

Moreover, Copa Holdings’s strong liquidity position looks impressive. Copa Holdings exited first-quarter 2020 with total cash, cash equivalents and short-term investments of $1,012.6 million. This is much higher than the current maturities of long-term debt figure of $261.2 million. This indicates that the company has enough cash to meet its debt burden.

Meanwhile, like other carriers, Copa Holdings is bearing the brunt of plummeting air-travel demand due to the COVID-19 pandemic. With declining passenger revenues (comprising of majority of the top line), total revenues too declined in the first quarter. This bleak scenario is likely to hurt second-quarter results too.


Also, increase in non-fuel unit costs (up 8% in first-quarter 2020) on account of lower capacity mainly due to flight cancellations in March due to the COVID-19 outbreak hurt the company. Moreover, the temporary grounding of the fleet from Mar 22 resulted in a significant year-over-year capacity reduction. The company expects to resume operations (on a scaled-down basis) tentatively from Jun 1. Moreover, increase in non-fuel unit costs are likely to limit bottom-line growth going forward.

Zacks Rank & Key Picks

Copa Holdings currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Transportation sector are Scorpio Tankers Inc. STNG, Teekay Tankers Ltd. TNK and Nordic American Tankers Limited NAT . Scorpio Tankers and Teekay Tankers sport a Zacks Rank #1 (Strong Buy), while Nordic American Tankers carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for The Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.

The Teekay Tankers stock has seen the Zacks Consensus Estimate for current-year earnings being revised upward by 53.4% in the past 60 days.

The Zacks Consensus Estimate for Nordic American Tankers’ current-year earnings has been revised upward by 36.9% in the past 60 days.

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