The airline market has proved resilient over the years and is poised for significant growth due to increased demand for air travel and the inclusion of new innovative ideas to strengthen the market. With this background in mind, let's evaluate the prospects of airline stocks Copa Holdings, SA (CPA), Corporación América Airports SA (CAAP), and Cathay Pacific Airways (CPCAY) to determine the best investment opportunity in this space. for the moment. Read on….
With more people and cargo taking to the skies, along with technological advances, the outlook for the airline industry is promising. Given the industry's tailwinds, investors may consider buying shares of airlines Corporación América Airports SA (CAAP) and Cathay Pacific Airways Limited (CPCAY), positioned for potential gains, while it would be wise to look at Copa Holdings, SA (CPA) now.
According to the International Air Transport Association (IATA), global passenger demand for February 2024, measured in revenue passenger kilometers (RPK), increased by 21.5% year-on-year, while total capacity measured in available seat kilometers (ASK) increased by 18.7% year-on-year.
of Total air cargo demandmeasured in cargo tonne-kilometres (CTK), increased by 11.9% compared to February 2023 levels, marking the third consecutive month of double-digit year-over-year demand growth.
The airline industry is expected to show tremendous growth this year and expect further growth in 2025. IATA predicts total revenue to grow by 7.6% year-on-year. $964 billion in 2024.
The industry is coming along new innovative technologiessuch as using global weather data, historical flight operations data and more, with the help of artificial intelligence (AI) algorithms to avoid flight delays and cancellations, improve customer experience, employee efficiency and to help reduce costs.
The US Aviation market is estimated to grow by a CAGR of 4.5%reaching $105 billion by 2030.
In light of these encouraging trends, let's look at the basics of all three Airlines shares, starting from the weakest from the investment point of view.
Stock #3: Copa Holdings, SA (CPA)
Headquartered in Panama City, Panama, CPA provides airline passenger and cargo services. The company operates through the air transport segment. It offers approximately 327 daily scheduled flights to 78 destinations in 32 countries in North, Central and South America, as well as the Caribbean from its Panama City hub.
On April 11, CPA announced its March 2024 figures, in which CPA capacity (ASM) increased by 12.3%, while system-wide passenger traffic (RPM) also increased by 11.5% year-on-year.
On March 15, CPA paid its shareholders its first quarterly dividend of $1.61 per share. Its annual dividend rate of $6.44 per share translates to a dividend yield of 6.69% above the current share price. Its four-year average yield is 1.32%. Over the past five years, CPA's dividend payouts have grown at 8.5% CAGR.
CPA's trailing 12-month EBITDA and leveraged FCF margins of 32.29% and 21.53% are 135.8% and 225.7% higher than the industry average of 13.69% and 6.61%, respectively. However, stock asset turnover ratio of 0.70x is 11.4% lower than the industry average of 0.79x.
Over the last three and five years, its revenue grew at a CAGR of 62.9% and 5.3%, respectively, while its total assets grew at a CAGR of 10.5% and 3.2% over the same periods.
During the fiscal fourth quarter ended December 31, 2023, CPA's total operating income and total operating expenses increased 3% and 4% year-over-year to $916.93 million and $698.06 million, respectively.
For the same quarter, the company's adjusted net income rose 6% from the year-ago quarter, while basic adjusted earnings per share fell slightly from the year-ago quarter to $4.47.
The Street expects CPA's revenue for the fiscal year ending December 2024 to rise 7.6% year-over-year to $3.72 billion. The company's EPS is expected to decline 1.6% year over year to $16.52 for the same period. The company beat EPS consensus estimates in each of the trailing four quarters, which is impressive.
The stock has fallen 14.8% over the past nine months, but gained 14.2% over the past six months to close the last trading session at $96.25.
The mixed foundations of the CPA are reflected in it POWR Ratings. The stock has an overall rating of C, equal to Neutral in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted on an optimal scale.
The stock has a grade of C for Growth, Value, Momentum and Stability. within Airlines industry, it ranks #10 out of 26 stocks.
To view additional POWR sentiment and quality ratings for CPAs, Click here.
Stock #2: Corporación América Airports SA (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-on-year increase in passenger traffic in February 2024, reaching 92.80% of February 2019 levels. Additionally, it reported that its international passenger traffic was 4.2% above pre-pandemic levels.
CAAP's trailing 12-month cash from operations of $356.42 million is 18.4% higher than the industry average of $300.97 million. Its trailing 12-month EBITDA and FCF margins of 40.33% and 16.67% are 194.6% and 152.3% higher than the industry average of 13.69% and 6.61%, respectively.
Over the past three and five years, its EBITDA grew at CAGRs of 123.8% and 3.4%, respectively, while its net income grew at a CAGR of 102% over the past five years.
For the fiscal fourth quarter ended Dec. 31, 2023, CAAP's revenue was $365.04 million, while gross profit rose 6.4% year over year to $115.38 million. Moreover, its corrected EBITDA resulted in 303.40 million ALL, with an increase of 146.6% from the quarter of the previous year.
For the same quarter, its revenue for the period attributable to owners of the parent and EPS were $130.75 million and $0.81, up 977.2% and 976.7%, respectively, from the prior year quarter.
The Street expects CAAP's revenue for the fiscal year ending December 2024 to rise 13.5% year over year to $1.59 billion. Its EPS is expected to be $1.18 for the same period. The company beat EPS consensus estimates in three of the trailing four quarters.
The stock has gained 59.6% over the past year to close 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 gets an A for feel and a B for timing and quality. Within the same industry, it ranks #2.
For other CAAP (Growth, Value and Stability) ratings, Click here.
Stock #1: Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY provides international passenger and air cargo services. The company operates the business through its four 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, especially during the Chinese New Year holiday period. On February 18, CPCAY reached an important milestone by carrying over 70,000 passengers and operating 272 passenger flight sectors, the most in a single day since the start of the pandemic. CPCAY carried 1,801,174 passengers in February 2024, an increase of 61.6% year-on-year.
On March 13, CPCAY announced the distribution of an interim dividend for the year ended December 31, 2023, of HKD 0.43 per share, payable to shareholders on May 2. The annual dividend rate of $0.55 per share translates to a dividend yield of 10.72% over the current share price. Its four-year average yield is 0.28%. Over the past five years, CPCAY's dividend payouts have grown at 23.5% CAGR.
CPCAY's trailing 12-month cash from operations of $3.38 billion is significantly higher than the industry average of $300.97 million. Its trailing 12-month EBITDA and FCF margins of 21.66% and 20.86% are 58.2% and 215.6% higher than the industry average of 13.69% and 6.61%, respectively.
Over the past three years, its revenue grew at 26.3% CAGR, while its net income grew at 33.1% CAGR over the past five years.
For the fiscal year 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 same year, its basic earnings attributable to CPCAY shareholders and earnings per common share totaled $982 million and 16.10 cents, compared to basic loss attributable to CPCAY shareholders and loss per common share of 849 million dollars and 14.40 cents in the previous year. , respectively.
The Street expects CPCAY's revenue for the fiscal year ending December 2024 to rise 18.6% year over year to $14.32 billion.
The stock has gained 5.5% over the past six months to close the last trading session at $5.13. Over the past year, it has gained 4.2%.
CPCAY's strong prospects are reflected in its POWR ratings. The stock has an overall rating of A, equivalent to a Strong Buy in our proprietary rating system.
CPCAY has an A for Quality and a B for Growth, Value and Stability. It ranks first in the same industry.
Click here for additional POWR ratings for CPCAY (Momentum and Sentiment).
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Shares of CPCAY were flat in premarket trading on Tuesday. Year-to-date, CPCAY has gained 3.47%, versus a 6.46% gain in the benchmark S&P 500 over the same period.
About the Author: Neha Panjwani
From her school days, Neha nurtured a deep fascination for finance, a passion that led her to a career as an investment analyst after completing her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her knowledge of investment fundamentals. Neha's primary objective is to assist retail investors in discerning optimal investment opportunities by diligently evaluating the core aspects of financial instruments, with a primary focus on stocks and ETFs. Its commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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