CPA - Copa Holdings: Risks And Upside Present But Valuation Completely Misaligned

2024-03-26 10:17:10 ET

Summary

• Copa’s revenue growth has been underwhelming (+3%), as has its margin development, with considerable volatility as Copa has navigated industry disruption and growth in LatAm.
• Irrespective of this, we believe Copa is now well-placed. Its growth trajectory is healthy due to a solid pipeline of volume growth, while industry demand is expected to be strong.
• Copa’s margins are market-leading, with analysts expecting it to maintain this. We see this as the biggest risk, albeit there is limited evidence to suggest a collapse.
• Copa’s near-term performance will continue to soften due to macroeconomic conditions but should maintain growth. We see this as an inevitable normalization.
• The company’s valuation is completely depressed, irrespective of risks and the slowdown expected, implying an upside in our view.

Introduction and thesis

Copa Holdings ( CPA ) is a "Latin American provider of airline passenger and cargo services". "The company was founded in 1947 and is headquartered in Panama City", and operates under the brands Copa Airlines and Wingo. Copa Airlines primarily serves destinations in North, Central, and South America, as well as the Caribbean, while Wingo focuses on low-cost flights within Latin America and the Caribbean.

Copa is a solid business in our view. We would have preferred to see a clearer improvement in the company’s competitive and operational position through its financial results, yet much of this thesis rests more so on its current position....

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