Copa Holdings, S.A. (CPA), Gol Linhas Aereas Inteligentes SA (ADR) (GOL), LATAM Airlines Group SA (ADR) (LFL): One Latin American Airline to Buy, Two to Hold

A Chile player

LATAM Airlines Group SA (ADR) (NYSE:LFL) is a major provider of domestic and international passenger and cargo services in Brazil. The company shares a similar story to Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) in the context of a feeble balance sheet. Both LATAM Airlines Group SA (ADR) (NYSE:LFL) and Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) are debt laden and need to bolster their balance sheets. LATAM Airlines Group SA (ADR) (NYSE:LFL) has already announced plans to issue up to $1 billion in a secondary issuance. There are a confluence of factors that keeps the Street grounded about this company: (1) uncertainty over the magnitude of dilution from its announced planned rights offering; (2) ongoing integration challenges; and (3) the near-term passenger (pax) and cargo traffic recovery looks uneven.

Those who are not aware of what integration means here should know that LATAM Airlines Group SA (ADR) (NYSE:LFL) is actually a product of merger between two Chile airlines that are Lan Airlines and TAM airlines. Both combined their business back in June 2012 and went on to form LATAM Airlines Group SA (ADR) (NYSE:LFL), which would provide its customers access to 150 destinations in 22 countries.

The stock is down 40% in the last six months. However, there are a few positives that can help to neutralize the bearish outlook on the company: (1) The Street sees earnings approaching an inflection point; (2) LATAM Airlines Group SA (ADR) (NYSE:LFL) is a leading carrier in oligopolistic markets in the region; and (3) there is a secular growth opportunity in the under-penetrated aviation market.

Final word

Copa Holdings, S.A. (NYSE:CPA) seems to be the best investment of the lot given its solid balance sheet, which will not only help to expand its operations but also increase its payout and eventually improve its modest 1.6% dividend yield.

The article One Latin American Airline to Buy, Two to Hold originally appeared on Fool.com and is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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