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Will Geopolitics Dampen Copa Holdings' (CPA) Q2 Earnings?

Copa Holdings, S.A. CPA is scheduled to report second-quarter 2018 financial numbers on Aug 8 after market close.

Last reported quarter, the carrier delivered a positive earnings surprise of 15.8%. Revenues also surpassed estimates. Moreover, both metrics improved on a year-over-year basis. High passenger revenues aided results. Moreover, the airline’s earnings history boasts successive estimate beats in all the trailing four quarters, the average being 7.9%.

However, things do not seem to be looking up for the company this quarter. Evidently, the Zacks Consensus Estimate for second-quarter earnings has been revised 12.3% downward over the last 60 days.

Let’s delve into the factors rendering such a bleak outlook.

Factors at Play

The company’s operations took a major downturn this April from the political dispute involving Panama and Venezuela. Consequently, the company had to cancel approximately 360 flights pertaining to its Venezuela operations. Though the issue has been resolved now, lingering effects of the conflict are likely to leave a negative impact to the tune of $15 million in the second quarter.
 
Another major headwind likely to affect results in the to-be-reported quarter is the rise in fuel costs. Similar to the previous quarter, spike in fuel prices is anticipated to hurt the company’s bottom line in the second quarter as well. Notably, fuel prices are expected to be $2.25 per gallon in the quarter under review, much higher than $1.77 a year ago. The estimate also lies above $2.16 reported in the first quarter. The Zacks Consensus Estimate for the same stands at $2.34.

Apart from these negativities, year-over-year comparisons will largely vary due to the calendar shift in Easter holiday travel.

However, despite the company grappling with various issues, robust demand for air travel is expected to aid results. Notably, traffic has risen substantially for three consecutive months in the Apr-Jun period. The Zacks Consensus Estimate for second-quarter revenue passenger miles (RPMs), measuring traffic, is pegged at 5.38 billion, above 4.77 billion a year ago. Consequently, high passenger revenues are anticipated to boost the top line. The consensus mark for passenger revenues in the quarter stands at $640 million, higher than $562 million in the year-ago period.

Copa Holdings, S.A. Price and EPS Surprise

 

Copa Holdings, S.A. Price and EPS Surprise | Copa Holdings, S.A. Quote


 

Earnings Whispers

Per our proven model, a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat. However, that is not the case here as highlighted below.

Earnings ESP: Copa Holdings has an Earnings ESP of -6.54% as the Most Accurate Estimate is pegged at $1.20 per share while the Zacks Consensus Estimate stands at $1.28. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Copa Holdings carries a Zacks Rank #4 (Sell).

We caution against all Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Euronav NV EURN, Fly Leasing Limited FLY and Frontline Ltd. FRO as these possess the right combination of elements to beat estimates in the next releases.

Euronav has an Earnings ESP of +2.31% and a Zacks Rank of 3. The company will report second-quarter earnings on Aug 9.  

Fly Leasing Limited has an Earnings ESP of +1.35% and is a Zacks #3 Ranked player. The company will report second-quarter earnings on Aug 23.

Frontline has an Earnings ESP of +10.59% and is a #3 Ranked stock. The company will report second-quarter earnings on Aug 31. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Copa Holdings, S.A. (CPA): Free Stock Analysis Report
 
Fly Leasing Limited (FLY): Free Stock Analysis Report
 
Frontline Ltd. (FRO): Free Stock Analysis Report
 
Euronav NV (EURN): Free Stock Analysis Report
 
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