The airline market has emerged resilient through the years and is poised for significant growth owing to increasing air travel demand and the incorporation of recent revolutionary ideas to bolster the market. Given this backdrop, let’s assess the prospects of airline stocks Copa Holdings, S.A. (CPA), Corporación América Airports S.A. (CAAP), and Cathay Pacific Airways (CPCAY) to find out the perfect investment opportunity on this space for now. Read on….
With more people and cargo taking to the skies, coupled with technological advancements, the airline industry’s prospects are promising. Given the industry tailwinds, investors could consider buying airline stocks Corporación América Airports S.A. (CAAP) and Cathay Pacific Airways Limited (CPCAY), positioned for potential gains, while it might be clever to look at Copa Holdings, S.A. (CPA) now.
According to the International Air Transport Association (IATA), global passenger demand for February 2024, calculated in revenue passenger kilometers (RPKs), grew by 21.5% year-over-year, while the whole capability measured in available seat kilometers (ASK) increased by 18.7% annually.
The air cargo total demand, measured in cargo tonne-kilometers (CTKs), increased by 11.9% in comparison with February 2023 levels, marking the third consecutive month of double-digit year-on-year demand growth.
The airline industry is anticipated to showcase extraordinary growth this yr and expect further growth in 2025. The IATA forecasts total revenues to grow by 7.6% yr over yr to $964 billion in 2024.
The industry is coming up with recent revolutionary technologies, just like the usage of world weather data, historical flight operations data, and more, with the assistance of artificial intelligence (AI) algorithms to avoid flight delays and cancellations, enhance customer experience, worker efficiency, and assist in cutting costs.
The U.S. Aviation Market is estimated to grow at a CAGR of 4.5%, reaching $105 billion by 2030.
In light of those encouraging trends, let us take a look at the basics of the three Airlines stocks, starting with the weakest from the investment perspective.
Stock #3: Copa Holdings, S.A. (CPA)
Headquartered in Panama City, Panama, CPA provides airline passenger and cargo services. The Company operates through air transportation segment. It offers roughly 327 day by day scheduled flights to 78 destinations in 32 countries in North, Central, and South America, in addition to the Caribbean from its Panama City hub.
On April 11, CPA announced its March 2024 figures during which CPA’s capability (ASMs) increased by 12.3%, while system-wide passenger traffic (RPMs) also increased by 11.5% year-over-year.
On March 15, CPA paid its shareholders the primary quarterly dividend of $1.61 per share. Its annualized dividend rate of $6.44 per share translates to a dividend yield of 6.69% on the present share price. Its four-year average yield is 1.32%. Over the past five years, CPA’s dividend payments have grown at an 8.5% CAGR.
CPA’s trailing-12-month EBITDA and levered FCF margins of 32.29% and 21.53% are 135.8% and 225.7% higher than the industry averages of 13.69% and 6.61%, respectively. However, the stock’s asset turnover ratio of 0.70x is 11.4% lower than the industry average of 0.79x.
Over the past three and five years, its revenue grew at CAGRs of 62.9% and 5.3%, respectively, while its total assets grew at 10.5% and three.2% CAGRs over the identical periods.
During the fiscal fourth quarter that ended December 31, 2023, CPA’s total operating revenue and total operating expense increased 3% and 4% year-over-year to $916.93 million and $698.06 million, respectively.
For the identical quarter, the corporate’s adjusted net profit increased 6% from the year-ago quarter, while adjusted basic earnings per share declined marginally from the prior-year quarter to $4.47.
Street expects CPA’s revenue for the fiscal yr ending December 2024 to extend 7.6% year-over-year to $3.72 billion. The company’s EPS is anticipated to say no 1.6% year-over-year to $16.52 for a similar period. The company surpassed consensus EPS estimates in each of the trailing 4 quarters, which is impressive.
The stock has declined 14.8% over the past nine months but gained 14.2% over the past six months to shut the last trading session at $96.25.
CPA’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct aspects, with each factor weighted to an optimal degree.
The stock has a C grade for Growth, Value, Momentum, and Stability. Within the Airlines industry, it’s ranked #10 out of 26 stocks.
To see additional POWR Ratings for Sentiment and Quality for CPA, click here.
Stock #2: Corporación América Airports S.A. (CAAP)
Headquartered in Luxembourg City, Luxembourg, CAAP acquires, develops, and operates airport concessions. It operates 52 airports in Latin America, Europe, and Eurasia.
On March 19, CAAP reported a 5.4% year-over-year increase in passenger traffic in February 2024, reaching 92.80% of February 2019 levels. Additionally, it reported its international passenger traffic to be 4.2% above pre-pandemic levels.
CAAP’s trailing-12-month money from operations of $356.42 million is eighteen.4% higher than the industry average of $300.97 million. Its trailing-12-month EBITDA and levered FCF margins of 40.33% and 16.67% are 194.6% and 152.3% higher than the industry averages of 13.69% and 6.61%, respectively.
Over the past three and five years, its EBITDA grew at CAGRs of 123.8% and three.4%, respectively, while its net income grew at a 102% CAGR over the past five years.
For the fiscal fourth quarter that ended December 31, 2023, CAAP’s revenue stood at $365.04 million, while gross profit increased 6.4% year-over-year to $115.38 million. Moreover, its adjusted EBITDA stood at 303.40 million, up 146.6% from the year-ago quarter.
For the identical quarter, its income for the period attributable to owners of the parent and EPS stood at $130.75 million and $0.81, up 977.2% and 976.7% from the prior-year quarter, respectively.
Street expects CAAP’s revenue for the fiscal yr ending December 2024 to extend 13.5% year-over-year to $1.59 billion. Its EPS is anticipated to be $1.18 for a similar period. The company surpassed consensus EPS estimates in three of the trailing 4 quarters.
The stock has gained 59.6% over the past yr to shut the last trading session at $16.45. Over the past six months, it has gained 36%.
CAAP’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
CAAP has an A grade for Sentiment and a B for Momentum and Quality. Within the identical industry, it’s ranked #2.
For CAAP’s other rankings (Growth, Value, and Stability), click here.
Stock #1: Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY offers international passenger and air cargo transportation services. The company operates business through its 4 operating segments: Cathay Pacific and Cathay Dragon; Air Hong Kong; HK Express; and Airline Services.
On March 21, CPCAY February 2024 figures showed strong travel demand throughout the month, particularly in the course of the Chinese New Year holiday period. On February 18, CPCAY achieved a major milestone by carrying over 70,000 passengers and operating 272 passenger flight sectors, essentially the most on a single day because the start of the pandemic. CPCAY carried 1,801,174 passengers in February 2024, a rise of 61.6% year-over-year.
On March 13, CPCAY announced the distribution of an interim dividend for the yr ended December 31, 2023, of HKD0.43 per share, payable to shareholders on May 2. Its annualized dividend rate of $0.55 per share translates to a dividend yield of 10.72% on the present share price. Its four-year average yield is 0.28%. Over the past five years, CPCAY’s dividend payments have grown at a 23.5% CAGR.
CPCAY’s trailing-12-month money from operations of $3.38 billion is significantly higher than the industry average of $300.97 million. Its trailing-12-month EBITDA and levered FCF margins of 21.66% and 20.86% are 58.2% and 215.6% higher than the industry averages of 13.69% and 6.61%, respectively.
Over the past three years, its revenue grew at a 26.3% CAGR, while its net income grew at a 33.1% CAGR over the past five years.
For the fiscal yr that ended December 31, 2023, CPCAY’s total revenue and operating profit stood at $12.11 billion and $1.94 billion, up 85.1% and 335.7% year-over-year, respectively.
For the identical yr, its underlying profit attributable to shareholders of CPCAY and earnings per peculiar share got here to $982 million and 16.10 cents, in comparison with underlying loss attributable to shareholders of CPCAY and loss per peculiar share of $849 million and 14.40 cents within the previous yr, respectively.
Street expects CPCAY’s revenue for the fiscal yr ending December 2024 to extend 18.6% year-over-year to $14.32 billion.
The stock has gained 5.5% over the past six months to shut the last trading session at $5.13. Over the past yr, it has gained 4.2%.
CPCAY’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
CPCAY has an A grade for Quality and a B for Growth, Value, and Stability. It is ranked first inside the same industry.
Click here for the extra POWR Ratings for CPCAY (Momentum and Sentiment).
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CPCAY shares were unchanged in premarket trading Tuesday. Year-to-date, CPCAY has gained 3.47%, versus a 6.46% rise within the benchmark S&P 500 index in the course of the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a profession as an investment analyst following the completion of her bachelor’s degree in commerce. Currently enrolled within the CFA program, Neha is devoted to further enriching her comprehension of investment fundamentals.
Neha’s primary objective is to assist retail investors in discerning optimal investment opportunities by diligently evaluating crucial points of economic instruments, with a primary deal with stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions within the dynamic world of finance.
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