Shares of Copa Holdings, S.A. CPA hit a 52-week low of $109.04 during the trading session on Jun 1 before retracing a bit to close at $109.26. The stock has declined 18.5% so far this year, performing even worse than the industry’s 12.9% decrease.
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Let’s delve into the factors causing this downtrend.
Temporary Pause on Venezuela Operations
Back in April this year, the Venezuela government temporarily suspended Copa Holdings’ flights for 90 days. The move came in after Panama tagged the Venezuelan President Nicolas Maduro and 50 other Venezuelan nationals as “high-risk profiles” for crimes related to funding terrorism and money laundering.
In the wake of this issue, Copa Holdings had to cancel approximately 360 flights pertaining to its Venezuela operations in the first quarter of 2018. Though the dispute has been resolved now with the governments of Venezuela and Panama reaching a consensus to reestablish their bilateral diplomatic and commercial ties with immediate effect, the lingering effects of the conflict however, are likely to persist for a while. In fact, the company apprehends a negative impact to the tune of $15 million in the second quarter due to this adversity. Further, it anticipates full-year operating margin in the low end of its previously guided range of 17-19%.
Fuel Costs
Rising fuel costs are another major headwind for the company. Like the first quarter, the metric is expected to limit bottom-line growth in the second one as well. In the first quarter of 2018, average fuel price per gallon increased 17.6% year over year to $2.16. Fuel prices are anticipated to be even higher ($2.25 per gallon) in the current quarter.
Threat From Low-Cost Carriers
Growth of low-cost carriers could intensify competition for Copa Holdings. Notably, this February, Volaris Costa Rica, a subsidiary of the Mexican carrier Volaris, announced new routes from El Salvador, Costa Rica and Guatemala to Los Angeles, New York and Washington, respectively. Such expansion efforts from low-fare airlines in Copa Holdings’ region might pose a challenge to its growth.
Zacks Rank & Key Picks
Copa Holdings carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation GATX, Expeditors International of Washington, Inc. EXPD and SkyWest, Inc. SKYW. While GATX and SkyWest carry a Zacks Rank #2 (Buy), Expeditors sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of GATX, Expeditors and SkyWest have rallied more than 18%, 38% and 60%, respectively, in a year.
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