Panama's Copa Airlines Soars in Buy Zone Post-Analyst Upgrades

Key Points

• Analysts lifted their price targets for Copa Airlines, signaling confidence in the company's continued strong performance.
• Copa's revenue and earnings growth reflects the broader strength in passenger traffic throughout the airline industry.
• The company posted better-than-expected first-quarter earnings and revenue.

Shares of Panamanian airline Copa Holdings S.A. NYSE: CPA are flying after two analysts boosted their price targets in July. The stock is in a buy zone after rebounding from a shallow pullback near its 21-day moving average. 

Like many airlines in the U.S. and worldwide, Copa benefited from a surge in passenger traffic that shows no signs of letting up, despite inflation and continued media hand-wringing about a possible recession. 

Copa stock gapped out of a consolidation on May 11 after the airline reported better-than-expected first-quarter estimates, posting an earnings increase of 470% to $3.99 per share. That topped views by 65 cents, as you can see using MarketBeat's Copa earnings data. 

Revenue soared 52% to $867.3 million, well ahead of expectations. 

Wall Street Raised EPS Views

For the full year, Wall Street now sees the company earning $15.32 a share, an 86% year-over-year increase, a recently raised forecast. 

With the May 11 gap higher, Copa shares took off from a nine-week consolidation, advancing 12% since then. The stock retreated slightly from a June 14 high of $114.48 but never dipped as low as its 50-day average. 

It regained that price level on June 13, as Delta Air Lines Inc. NYSE: DAL trounced earnings and revenue views, saying that travel demand shows continuing strength. Delta also raised its earnings forecast, with CEO Ed Bastian saying in media appearances that demand for travel is unusually strong. 

Copa and other airlines benefit from Delta's good news but have their own upbeat developments. Even though Copa's revenue growth has decelerated, remember that there were some easy comparisons between 2021 and 2020. In a post-pandemic environment, revenue growth of 52% is robust. 

On the earnings side, growth has been rising fast after an annual loss in 2020 and losses in the first two quarters of 2021. 

Analysts Say Copa is a Buy

MarketBeat's Copa analyst ratings show a consensus view of "buy" on the stock, with a price target of $126.50, an upside of 6.67%. In July, Goldman Sachs and Raymond James boosted their price targets on the stock. 

It's a good sign that Copa is part of an industry cruising at high altitude. A time-tested strategy for successful investment is to buy top-performing stocks in the highest-ranked industries. 

Airlines have risen in the past three months as institutional investors wake up to the potential in these stocks. Airline stocks declined in March as investors fretted travel would curtail due to fallout from the banking crisis. 

That worry, like many others, failed to materialize. 

Year-Over-Year Traffic Increasing

Copa recently released its monthly traffic statistics for June. Capacity increased 10.7% year-over-year, while system-wide passenger traffic increased 14.9% compared to 2022.

Copa is a mid-cap company with a market capitalization of $4.70 billion. Like many mid-cap companies based outside the U.S., Copa pays a dividend. As you can see using MarketBeat's Copa dividend data, the company's annual payout totals $3.28. The yield is 2.76%. The company has kept its dividend steady in the past two years with no increase. 

Airlines are among the most capital-intensive industries, meaning debt will be a reality. The company finances its aircraft through long-term debt and operating lease financings. 

Undiscovered Stocks Could Yield Big Gains

As of July 19, Copa shares were trading 0.97% higher, at $118.86.

Over the past 50 sessions, the average daily trading volume is 571,000, substantially lower than you'll find with big U.S.-based carriers. That's not necessarily a problem, as "undiscovered" stocks frequently post stronger price gains than larger, more established companies. 

It may be challenging to buy or sell shares of Copa at precisely the price you want due to the stock's illiquidity. Copa remains within 5% of its June 14 high of $114.48, so you can consider it within a buyable zone.