We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Copa Holdings, S.A. (NYSE:CPA) stands against the other airline stocks.
The COVID-19 pandemic’s impact on travel caused an alarming 54.1% drop in the airline industry’s revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world’s largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.
Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.
Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.
Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.
Methodology:
We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A Boeing 737-Next Generation aircraft in flight, highlighting the efficiency of the company’s fleet.
Copa Holdings, S.A. (NYSE:CPA)
% of shares shorted: 4.67%
Number of Hedge Fund Holders: 24
Through code-share agreements with UAL and other airlines, Copa offers customers access to flights to over 180 different destinations. From its hub in Panama City, Copa currently operates regular flights to 82 locations in 32 countries in North, Central, and South America as well as the Caribbean, with an average of about 375 flights each day. Since June 2012, it has been a part of Star Alliance.
Morgan Stanley’s Jens Spiess kept a “Buy” rating on Copa Holdings, S.A. (NYSE:CPA) with a price target of $130.00, highlighting the airline’s outstanding operational performance as seen by its strong 9.5% YoY traffic growth in July 2024 and its continuous 9.2% capacity expansion year-to-date. Spiess emphasizes the airline company’s capacity management skills in sustaining demand, which bolsters the company’s optimistic financial forecast. Additionally, TD Cowen reaffirmed its Buy rating for the stock with the same price target, boosting investor confidence.
Copa Holdings, S.A. (NYSE:CPA) announced a 10.6% growth in passenger traffic YoY. Despite a decline in yield and revenue per available seat mile, overall revenue increased by 1.3% to $819.4 million YoY. The company has strengthened its position as the leader in the industry by adding new aircraft to its fleet and maintaining excellent on-time performance.
However, its unit revenues and passenger yield declined in Q2 2024, suggesting a difficult operating environment. The firm’s capacity and unit revenue guidance have also been impacted by the suspension of flights to Venezuela, which presents additional difficulties for its financial performance.
Copa Airlines is confident in its comeback and plans to operate at full capacity by December despite these obstacles. The firm also reached a reasonable compensation deal with Boeing regarding the MAX 9 grounding. Furthermore, the success of the company’s direct connect approach and increased revenue efficiency is demonstrated by the fact that over 80% of its bookings currently originate from direct or NDC channels.
Moreover, Jim Simons’s Renaissance Technologies is one of the biggest stakeholders in the company, with 871,928 shares worth $82.99 million as of Q2, 2024. The average Wall Street analyst price target forCopa Holdings, S.A. (NYSE:CPA) is $147.6, which presents a 61.86% upside potential from the current price of $91.19.
Overall CPA ranks 4th on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of CPA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CPA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.