With the lowest current and forward earnings multiple of any regional airline, Panama-based Copa Holdings SA (CPA, Financial) looks like a steal on many fronts.
The company operates a fleet of over 100 aircraft, including more than 10 Boeing 737-700 next generation aircraft, over 60 Boeing 737-800 next generation aircraft and over 20 Embraer 190 aircraft. Copa has approximately 150 daily flights to 45 destinations in 24 countries in North, Central and South America and the Caribbean. It also resells seats to more than 120 international destinations through code share agreements with other airlines.
Over the last decade, it has increased sales from $1.2 billion in 2008 to over $2.6 billion, earnings per share from $2.71 to $9.35 and book value from $14.64 to $52.54. It has also significantly improved its operating cash flow, kept capital expenditure spending contained and produced solid returns on equity and invested capital.
It currently trades at a discount to average price multiples across the board. It fell below its 52-week low on Thursday.
Price-earnings
Five-year average: 14
Current: 8.1
Price-book
Five-year average: 2.5
Current: 1.4
Price-sales
Five-year average: 1.9
Current: 1.2
Price-cash flow
Five-year average: 7.7
Current: 4.9
Copa also pays out $3.48 (a 4.4% dividend), giving investors plenty of incentive to buy and hold as the company expects to earn over $20 a share over the next two years. That’s almost 27% of its total market cap for an airline that has $830 million in cash and just $914 million in long-term debt. Better still is the one-to-one currency conversion for the Panamanian balboa.
Regardless of what happens across the global economy, society is becoming wealthier, which means more people are able and willing to travel. Copa’s stock has traded lower in reaction to increased activity by United Continental (UAL, Financial) and other U.S. carriers in certain South American markets. Revenue passenger miles, however, increased 5.3% and capacity rose 4.6% in July. Also, Copa has significantly better margins and substantially lower debt burdens than all of the U.S. majors. So good luck trying to compete in Latin America.
Since there are very few short sellers pushing the stock down, it’s only a matter of time before gurus Jim Simons (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) see a turnaround in their holdings of Copa. Each of these super investors are down, but Simons' Renaissance Technologies and Jones added to their positions in the second quarter.
If Copa does earn over $10 per share in 2019, at 14 times earnings, that puts the stock above $140 per share, making it a no-brainer.Â
Disclosure: I am not long or short any stocks mentioned in this article.
