Despite macroeconomic issues, airline traffic in 2022 rose compared to the prior year. According to the International Air Transport Association (IATA) survey, revenue passenger kilometers (RPK) have grown 64.4% year-over-year in 2022.
Also, demand for air travel has been strong since early 2022, with leisure travelers taking up a larger percentage of the traffic. Moreover, demand is expected to remain robust this year as well.
American Airlines Group, Inc. (AAL) Chief Executive Robert Isom said, “We expect a strong demand environment to continue in 2023 and anticipate further improvement in demand for long-haul international travel this year.”
Furthermore, the air transport market is expected to grow to $1.25 trillion in 2027 at a CAGR of 6.1%.
Therefore, investors could consider buying quality airline stock, Copa Holdings, S.A. (CPA). However, Virgin Galactic Holdings, Inc. (SPCE) and Astra Space, Inc. (ASTR) might be best avoided now, considering their weak fundamentals and economic uncertainties.
Stock to Buy:
Copa Holdings, S.A. (CPA)
Headquartered in Panama City, Panama, CPA provides airline passenger and cargo services. The company offers approximately 204 daily scheduled flights to 69 destinations from its Panama City hub to 29 countries in North, Central, and South America and the Caribbean.
CPA’s net income margin of 14.27% is 122.7% higher than the industry average of 6.41%. Also, its ROCE of 28.97% is 107% higher than the industry average of 13.99%.
Its forward P/E of 11.31x is 35.5% lower than the industry average of 17.53x, while its forward EV/Sales multiple of 1.51 is 15.8% lower than the industry average of 1.79.
For the fiscal third quarter ended September 2022, CPA’s total operating revenues increased 16.7% sequentially to $809.45 million. Its operating profit came in at $143.69 million, indicating an increase of 240% sequentially. CPA’s adjusted net income and EPS came in at $115.06 million and $2.91, reflecting an increase of 773.8% and 809.4% from the prior quarter.
Analysts expect CPA’s revenue to increase 2.2% year-over-year to $70.21 billion in 2024, while its EPS is expected to increase 12.5% year-over-year to $3.79. It surpassed EPS estimates in all four trailing quarters. PFE’s shares have lost marginally intraday to close the last trading session at $43.34.
CPA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CPA has an A grade for Growth and a B for Quality. Within the Airlines industry, it is ranked #6 out of 29 stocks. Click here to access the additional POWR Ratings for CPA (Stability, Value, Momentum, and Stability).
Stocks to Avoid:
Virgin Galactic Holdings, Inc. (SPCE)
SPCE is an integrated aerospace company that develops human spaceflight for private individuals and researchers in the United States. It also manufactures air and space vehicles. In addition, it designs, develops, and manufactures spacecraft and engages in ground and flight testing and post-flight maintenance of spaceflight vehicles.
SPCE’s ROTA of negative 34.16% is lower than the industry average of 5.15%. Also, its ROCE of negative 54.33% is lower than the industry average of 13.99%.
Its forward Price/Sales of 839.45x is substantially higher than the industry average of 1.42x, while its forward EV/Sales multiple of 488.71 compares with the industry average of 1.79.
SPCE’s revenues came in at $767 thousand for the third quarter that ended September 30, 2022, down 70.3% year-over-year. Its net loss came in at $145.55 million, up 200.9% year-over-year, while its loss per share came in at $0.55, up 71.9% year-over-year. Also, its adjusted EBITDA loss increased 89.8% year-over-year to $128.52 million.
SPCE’s EPS is expected to decline 41.7% to a negative $0.53 for the quarter ending March 2023. It failed to surpass the EPS estimates in three of the trailing four quarters. It has lost 43.5% over the past year to close the last trading session at $5.18.
SPCE’s POWR Ratings reflect its poor prospects. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability, Value, and Sentiment and a D for Growth and Quality. It is ranked last in the same industry. To see SPCE rating for Momentum, click here.
Astra Space, Inc. (ASTR)
ASTR designs, tests, manufactures, launches, and operates space products and services. Its customers primarily include satellite operators, satellite manufacturers, government agencies, and prime defense contractors.
ASTR’s ROTA of negative 193.79% is lower than the industry average of 5.15%. Also, its ROCE of negative 151.87% is significantly lower than the industry average of 13.99%.
Its forward Price/Sales of 12.36x is 770.4% higher than the industry average of 1.42x.
ASTR’s operating loss increased 369.4% year-over-year to $199.71 million for the third quarter ended September 30, 2022. Its net loss for the period increased by 1125.5% year-over-year to $199.11 million. Also, its loss per share came in at $0.75, up 1150% year-over-year.
Street expects ASTR’s EPS to remain negative this year. Its EPS is expected to fall 29.4% per annum for the next five years. The stock has lost 89.1% over the past year to close the last trading session at $0.58.
ASTR has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has an F grade for Stability and a D for Quality. It is ranked #28 in the same industry. We have also rated ASTR for Value, Growth, Sentiment, and Momentum. Get all the ASTR ratings here.
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CPA shares were trading at $89.98 per share on Friday morning, down $1.42 (-1.55%). Year-to-date, CPA has gained 8.19%, versus a 6.63% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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