Copa Holdings SA CPA, a leading provider of passenger and cargo services in Latin America, is scheduled to release its first-quarter financial numbers on May 6, after the close of trading on that day.
Copa Holdings has a healthy track record with respect to earnings – it has delivered positive earnings surprises in each of the last four quarters, with an average beat of 22.55%. However, it’s not all rosy for the Latin American carrier as far as the first quarter of 2015 is concerned. Let’s delve into the details to know why this is the case.
Factors at Play
The weak Brazilian economy will tend to hurt the company’s results in the first quarter of 2015. The Panama City-based holding company of Copa Airlines has been under pressure ever since Venezuela cut off all diplomatic and political relations and froze all trade and economic ties with Panama.
Venezuela is a major, high-margin market for Copa. Consequently, it has high exposure to the market. Venezuela has been slow to repatriate Bolivar-denominated cash back to companies like Copa Holdings.
The severing of trade ties is not a good sign for the carrier which provides domestic and international services to different Latin American countries including Venezuela. Capacity reductions in Venezuela should also weigh on the results. Moreover, we expect Copa Holdings, which has a strategic partnership with United Continental Holdings Inc. UAL, to provide an update on its impending frequent flyer program during the first quarter conference call.
Earnings Whispers
Our proven model does not conclusively show that Copa Holdings is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Most Accurate estimate currently stands at $2.28 per share, while the Zacks Consensus Estimate is 12 cents higher. Hence, earnings ESP for Copa Holdings, which is the difference between the two estimates, stands at -5.00%.
Zacks Rank: Copa Holdings carries a Zacks Rank #4 (Sell). The bearish Zacks Rank problematizes matters further.
In fact, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions as is the case here. The Zacks Consensus Estimate of earnings for the first quarter of 2015 has gone down by 12 cents over the last 60 days.
Stocks to Consider
Even though we are bearish on Copa Holdings, we hereby present some transportation companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.
Diana Containerships Inc. DCIX carries a Zacks Rank #3 and has an earnings ESP of +100%. The company is scheduled to report its quarterly results on May 12.
Avolon Holdings AVOL carries a Zacks Rank #3 and has an earnings ESP of +6.25%. The company is scheduled to report its quarterly results on May 6.
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