If you follow my blog you know that I occasionally take chances on stocks that others avoid. My latest purchase of Copa Holdings is one of those purchases. I have been watching Copa Holdings for a year or so. I’ve wanted to add CPA stock to my portfolio but it has been overvalued. The past 12-months have been rocky for Copa. Copa Holdings stock is down to $84.96, which is more than 52% lower than its 52-week high of $157.98. I see a buying opportunity.
I sold a cash secured put on Copa Holdings at $85 which generated instant $90.29 profit. I didn’t expect Copa to fall below $85, but it did which is just fine with me, because I only sell puts on those stocks I am willing to own. The assigned put sent 100 shares to me at a cost basis of $84.09 per share. This stock purchase will add $336 dollars to my annual dividend income. Copa Holdings is latest addition to my Investment Hunting portfolio.
An Overview of Copa Holdings
Copa Holdings, S.A. (Copa Holdings) is a Latin American provider of airline passenger and cargo service through its two principal operating subsidiaries, Copa Airlines and Copa Colombia. Copa Airlines operates from its located position in the Republic of Panama, and Copa Colombia provides service within Colombia and international flights from various cities in Colombia to Panama, Venezuela, Ecuador, Mexico, Cuba, Guatemala and Costa Rica. As of December 31, 2013, the Company operates a fleet of 90 aircraft, 64 Boeing 737-Next Generation aircraft and 26 Embraer 190 aircraft. The Company offers approximately 327 daily scheduled flights among 66 destinations in 29 countries in North, Central and South America and the Caribbean from its Panama City hub. The Company provides passengers with access to flights to more than 150 other destinations through codeshare arrangements with UAL and other airlines. Source: http://www.schwab.com.
Copa Holdings Dividends And Annual Growth Rate
- 3-Year Compound Annual Growth Rate of 32.8%
- 5-Year Compound Annual Growth Rate of 59.7%
- Annual Dividend Yield of 3.95%
- 5-Year Dividend Per Share Average of $2.51
- 5-Year Dividend Yield Average of 1.98%
- Payout Ratio of 38.20%
The chart below shows the past eight years of annual dividends for the Copa Holdings. The chart illustrates the volatility in airline stocks. Airlines are low margin businesses, when revenues are down, dividends are down. However, with a 3.95% dividend yield, I am willing to accept annual dividend ups and downs.
Source: http://schwab.com
Is Copa Holdings Stock Fairly Priced
F.A.S.T Graphs shows that Copa is an undervalued stock. The blue line represents the normal P/E Ratio for Copa. The black line represents the current P/E Ratio of Copa. The black line is below the blue line. In fact, the black line is below the blue line for the first time in 5-years.
S&P Capital IQ ranks Copa Holdings as 4-stars with a 12-month target price of $130. However, most analyst list Copa Holdings as a hold or sell. I am going against the analyst community. I think Copa is a bargain stock at any price below $90. I am satisfied with my purchase of 100 shares at $84.96 per share.
Profitability
- Gross Profit Margin, 70.52%
- Operating Profit Margin, 17.97%
- Net Profit Margin, 12.33%
- Cash Flow Margin, 17.63%
- Cash Flow Per Share (TTM), $9.98
- Book Value/Share (MRQ), $48.55
- Enterprise Value, $4.28B
Financial Strength
- Current Ratio, 0.91
- Quick Ratio, 0.84
- Long-Term Debt, $943M
- Long-Term Debt to Capital, 28.74
- Total Debt to Capital, 35.03
Management Effectiveness
- Return on Assets, 8.00%
- Return on Equity, 15.61%
- Return on Investment, 10.47%
Copa Holdings Compared To Others
It’s tough being an airline. This industry runs on thin margins. Successful airlines control costs and focus on margin. Copa Holdings does a great job of making the most of its business. Copa beats industry leaders in profit and cash flow margins. Additionally Copa has impressive cash flow and book value per share.
Copa Holdings Risks
All investing comes with risk. Risk 1 – Latin American Markets. Copa Holdings is based in Panama and most of its routes are in South and Central America. One of the reasons why Copa stock is down is due to Brazil’s economic conditions and Brazil’s weak currency. I see this as a short-term risk, but Copa stock will likely be hurt until Brazil stabilizes. Risk 2 – Yield pressures due to Venezuela’s refusal to allow full repatriation of sales made in its country, which has caused CPA to cut capacity there. This will hurt Copa’s bottom line until such time as this issue is remedied and Copa adds more flights to this county.
Copa Holdings Conclusion
Copa Holdings stock has been knocked down more than 50% in price over the past 12-months. This price drop has created in my opinion a huge buying opportunity. I happily added shares of CPA at $84.96 per share. I believe the near future will be rough for Copa, but I like my chances with this stock over the next 2-5 years. Until recovery I will sell covered calls to make up for any stock price loss. Copa is expanding routes and adding more flights to the U.S. Additionally, Copa is expanding its fleet with a recent Boeing order of sixty one 737 aircraft valued at $6.6B
What is your opinion of Copa Holdings? Do you think Airline stocks are too risky? Which stocks are you buying these days?
Full Disclosure: Long CPA