Copa Doubles Profit, Clears Forecasts, But Weak Outlook Keeps Shares Falling

Copa Holdings, one of the top-performing airline operators in Latin America, more than doubled fourth-quarter profit, but shares fell Wednesday as its 2007 outlook disappointed investors.

Copa CPA earned 97 cents a share, up 137% vs. a year earlier. That's the best gain in three years and 6 cents above views. Revenue rose 32% to $237.4 million, also beating analyst forecasts.

"Our targets were aggressive and we met or surpassed them," said CEO Pedro Helibron, in a conference call with analysts.

But the Panamanian airline wasn't nearly as aggressive with its outlook. Copa unexpectedly reaffirmed its 2007 earnings guidance of $3.65 to $3.95 per share. That's well below Wall Street's forecast for $4.09.

Copa shares fell 4% to 51.82 in heavy trade. After nearly tripling from mid-August, Copa has suffered seven days of high-volume declines in the past nine sessions.

Copa Holdings is the parent of Copa Airlines and AeroRepublica, Colombia's No. 2 domestic carrier. It has one of the youngest airline fleets in the Americas and serves 36 destinations in 21 countries.

Flying In Boom Times

Copa, which launched its initial public offering in December 2005, benefits from being in the right place at the right time. Regional and domestic conditions are excellent.

Panama's economy will grow 6.7% this year, the best in a generally strong Latin America, according to the International Monetary Fund. And Panama's government late last year approved a multibillion-dollar expansion of the Panama Canal. That "will begin to stimulate an already fast-growing economy," Helibron said.

Copa says revenue passenger miles grew 27% to 1.38 billion in the fourth quarter vs. a year ago. Available seat miles -- a measure of flight carrying capacity -- rose 19% to 1.84 billion. That means Copa flights, on average, were 75% full, up from 70.2% a year ago.

Copa has strung together six quarters of double-digit earnings growth and 10 quarters of double-digit sales growth.

"Copa Airlines has outperformed consensus earnings in every single quarter since it has gone public," Stephen Trent, equities analyst at Citigroup, said in his report on Copa's latest results. "Copa's business model looks highly defendable."

As Trent and JPMorgan analyst Jamie Baker noted, Copa's steady outlook came as a surprise.

Yet big institutions had already been ditching Copa's shares, which are now 22% off their record high set on Feb. 15.

Copa isn't alone. Transportation stocks have been in reverse for quite some time.

Airline Descent

To be sure, global market woes have rocked transports.

But Copa and other carriers ran into turbulence before that. IBD's Transportation-Airline group hit a high in mid-January as crude oil futures fell below $50 a barrel.

But energy prices rebounded and economic concerns about economic growth returned. So investors started heading for the exits, especially since mid-February.

Other Latin American carriers have seen similar declines. That includes Chile-based Lan Airlines LFL and Brazil-based airlines Gol GOL and Tam TAM.

Trent also acknowledged risk factors in his report.

"Increased competition could put pressure on Copa's load factors, forcing the carrier to reduce ticket prices or respond in a way that could have a negative impact on its operations." Any signs of weak economic growth in the region, he added, "could be especially injurious to business travel."

Copyright 2007 Investor's Business Daily, Inc.