This company, which operates as a major transportation hub in the Americas, offers an attractive dividend yield of 6.59%, making it attractive to dividend-oriented investors. The dividend, paid quarterly, provides regular cash flow, with a payout ratio of 39.73%. This conservative ratio suggests that the company has plenty of room for further dividend increases if its earnings continue to grow.

The company is known for its geographic advantage with Tocumen Airport in Panama, which acts as an efficient transfer point for travelers between North, Central and South America. This strategic hub allows it to serve over 80 destinations in 32 countries with high load factors (86.8% in the last quarter). Low operating costs, high load factors and a favorable P/E ratio of 6.1 - well below the industry average - place the company among undervalued titles with growth potential.

Company performance

Copa Holdings, S.A $CPA is the holding company of Copa Airlines, an air carrier headquartered in Panama. Copa Airlines was founded in 1947 under the name Compañía Panameña de Aviación and originally provided regional service between cities in Central America. In 1998, it began a partnership with United Airlines of America, which fostered its growth and expansion into other regions. Since then, Copa Holdings has built a network focused on international passenger and cargo transportation, primarily across the Americas.

Copa Airlines specialises in transport between North, Central and South America, where it holds a significant position thanks to its strategic hub in Panama. Its home airport, Tocumen International Airport in Panama City, is known as the "Hub of the Americas" and acts as a key connecting point for flights linking the American continent. This geographic advantage allows Copa Airlines to efficiently serve more than 80 destinations in 32 countries, offering convenient connections between otherwise disconnected markets.

The company has a fleet of modern aircraft, mostly Boeing 737s, which allows it to provide efficient and relatively cost-effective operations. Its emphasis on direct connections and fast transfers has made it attractive to passengers seeking direct connections across the Americas without having to change planes in the US, where check-in processes are typically longer. Unlike many other Latin American airlines, Copa Airlines focuses on serving the continental market, rather than focusing on long-haul flights to Europe or Asia.

Copa Holdings went public on the New York Stock Exchange in 2005, where it is listed under the symbol CPA. Investors may find it interesting because of its stable financial performance in an industry that often faces large fluctuations. The company is known for its relatively strong cost management and conservative financial practices, allowing it to deliver solid results even during more difficult periods, such as the COVID-19 pandemic. In 2021, Copa launched the acquisition of smaller regional carrier Wingo, a low-cost division focused on markets in Colombia and Central America. Wingo operates as a more affordable alternative for passengers seeking basic services and lower costs.

In addition to standard Copa transportation services, it offers the ConnectMiles loyalty program, which allows customers to earn and redeem points for flights and various services. This program is part of the Star Alliance, which expands the redeemability of accumulated points and connections for Copa Airlines passengers. Through Star Alliance, Copa Airlines customers have access to an expanded global network of flights and frequent flyer benefits.

Expert views on the company

The stock has a P/E ratio of 6.1, which is well below the industry average of 17.43. This low ratio indicates that Copa stock may be undervalued compared to other companies in the airline industry.

Another indicator of attractive value is the PEG (Price/Earnings to Growth) ratio of 0.55, indicating that the company has not only low value but also growth potential. This PEG is also more favorable than the industry average of 1.05. Considering the historical data, Copa Holdings' PEG over the past 12 months has ranged between 0.19 and 0.59, indicating stable growth potential with a conservative valuation.

Another interesting complementary metric is the P/B ratio, or share price to book value, which is 1.69 for Copa Holdings - again lower than the industry average of 4.79. This ratio tends to be attractive to investors because a lower value may indicate that the stock is cheap relative to the actual value of the company's assets less liabilities.

Hedge funds trust the company

Copa Holdings is one of the stocks that is generating a lot of interest among investors, including hedge funds - 24 of them are currently invested in the company. Among the most prominent investors is Renaissance Technologies, which held a stake worth nearly $83 million at the end of the second quarter of 2024. This interest reflects favourable developments in the airline industry and the post-pandemic recovery, which has been recorded at 88% of pre-pandemic levels in 2023, with global industry revenues expected to reach US$996 billion in 2024.

Copa Holdings reported second quarter 2024 net income of $120.3 million and earnings per share (EPS) of $2.88. The company's operating margin was 19.5%, marking the second-best quarter in its history. This growth was supported by a 10.6% increase in passengers carried compared to the previous year, as well as a 9.7% increase in capacity. Occupancy also increased slightly to 86.8%, reflecting strong demand for Copa Airlines flights.

In addition, there was a 5.8% year-on-year decrease in the cost per average traffic mile, mainly due to lower ticket distribution costs.

Copa Holdings plans to increase capacity to peak in the final quarter of the year and expects an annual operating margin of between 21% and 23%. Wall Street analysts are thus bullish on CPA stock, estimating up to 49% upside potential in its price. While the company faces the challenge of suspending flights to Venezuela, which may affect its capacity and revenue per flight unit, the outlook remains positive overall due to planned capacity growth and strong demand for international air travel.

Dividends

The company currently pays an annual dividend of USD 6.44 per sharewhich, at the current share price, translates into a dividend yield of 6.59%. The dividend yield is attractive not only relative to average yields in the airline industry, but also within the broader market, making Copa Holdings stock an attractive choice for dividend investors.

The dividend is paid quarterly, which increases the frequency of income for investors and provides a regular cash flow. The last ex-dividend date was August 30, 2024, which means that only shareholders who held shares prior to that date are eligible for upcoming dividend payments.

One of the key indicators of dividend sustainability is payout ratio (payout ratio), which in the case of Copa Holdings is 39,73 %. This ratio shows that the company pays out just under 40% of its net income in dividends, which is a healthy level and indicates that the company has sufficient room to maintain or potentially increase its dividend if its earnings stabilize or grow.

Dividend growth has reached a remarkable year-on-year 129,67 %, confirming Copa Holdings' dynamic approach to increasing shareholder rewards. This may be the result of an improved financial situation after a pandemic period of increasing international demand for air travel. Nevertheless, only one year of dividend growth has been recorded so far, so it is difficult to estimate the longer-term trend.

Another interesting factor is buyback yield of a buyback yield of 10,88 %which indicates a significant amount of share buybacks contributing to the overall shareholder return (shareholder yield), which amounts to 17,46 %. This indicator includes both dividend yield and buyback yield, making Copa Holdings a company with a very generous approach to shareholder remuneration.

Operating cash flow is showing a positive trend. In 2023 and TTM (last 12 months), the company reported strong results with a value of over $1 billion. This is significantly better than previous years where the value in 2020 was minimal (US$5.27 million). This growth in operating cash flow indicates that the firm is effectively generating cash from current operations, which is positive for dividend sustainability.

Free cash flow (FCF) in 2023 was USD 214.91 million, which is significantly better than previous years where free cash flow in 2020 was negative (-$55.21 million). This positive trend shows that the company is able to generate enough free cash to fund both investments and dividends.

How was the last quarter?

In the second quarter of 2024, the company achieved Copa Holdings a significant improvement in financial results compared to the same period in 2023. 1,3 % at $819.4 millionprimarily driven by growth in passenger traffic o 10,6 %. The company reported a net profit USD 120.3 millionwhich is equivalent to $2.88 per sharewith an operating profit 159.5 million USD with an operating margin of 19,5 %. These results represent the second best second quarter operating income and margin in the company's history, reflecting Panama's favorable geographic position, low operating costs and stable demand for air travel in the region.

The company increased capacity by 9,7 % compared to the second quarter of 2023, increasing seat occupancy to 86,8 %. Revenue per mile, however, decreased year-over-year by 7,7 % at 11.0 cents, which was partly due to a decrease in revenue per passenger, mainly due to a revision of unused ticket sales. Total operating costs increased by 7,4 % at USD 659.9 million, mainly due to higher capacity and fuel consumption growth. Fuel costs were USD 246 million, representing 14,9% increase due to 5,2% increase in the price of fuel per gallon and 9,6% increase in consumption.

Other significant expenses include salary and benefit costs of $114.9 million (a year-over-year increase of 8,6 %) and passenger service costs, which reached USD 27.6 million, an increase of 28,5 %. This increase was supported by higher passenger numbers and increased costs for non-scheduled operations.

The Company continues to improve its liquidity and stable financial position. At the end of the quarter, Copa Holdings had approximately USD 1.2 billion in cash and short- and long-term investments, equivalent to 35 % of annual sales. The company's total debt is USD 1,8 billion and its ratio of adjusted net debt to EBITDA was 0,6. The Company has set its operating margin guidance for 2024 between 21-23 % and plans to leverage its strong balance sheet to further strengthen its competitive position in the Latin American aviation market.

Recent results

Copa Holdings has shown a significant improvement in its financial results over the past few years, driven not only by a recovery in global demand for air travel following the pandemic, but also by effective cost management and growth in operating capacity.

For revenues, we see a gradual upward trajectory, with revenues of $800 million in 2020, compared to just under $3.5 billion in 2023. Similarly, we see growth in net income and EPS, where after a challenging (loss-making) year in 2020, the recovery has come and the company has moved back into positive numbers.

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