Copa Holdings (CPA) Q2 Earnings: Disappointment In Store?

Copa Holdings SA (NYSE:CPA) is scheduled to report second-quarter 2016 results, after market close on Aug 3.

In the first quarter of 2016, the carrier reported a positive earnings surprise of 20.29%. The company has a mixed record with respect to earnings, having topped the Zacks Consensus Estimate in two of the last four quarters, the average being +2.74%.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

Copa Holdings, like most other Latin American carriers, has been seeing tough times due to a weak economy and adverse foreign currency movements. The forecast made by the International Air Transport Association that Latin American carriers, which include the likes of GOL Linhas Aereas Inteligentes S.A. (NYSE:GOL) apart from Copa Holdings, will account for only $0.1 billion of the estimated $39.4 billion global net profit in 2016, further highlighting the sorry state that carriers in this region are currently in.

The strengthening of the dollar against the Brazilian real has forced most passengers to defer their travel plans, consequently hurting the carrier’s air traffic and profit numbers. In view of the above scenario, it is natural for us to expect Copa Holding’s second-quarter results to be hurt by Brazil’s recession apart from the troubles in Venezuela, one of the company’s larger markets.

Furthermore, stiff competition from the likes of LATAM Airlines (NYSE:LFL) , Azul Brazilian Airlines and GOL Linhas – which largely dominate the Brazilian aviation space – is expected to hinder growth at Copa Holdings. However, we are impressed with the company’s efforts to reward shareholders through dividends. We expect an update on the same during the second-quarter conference call.

Earnings Whispers

Our quantitative model doesn’t conclusively predict an earnings beat in the second quarter for this struggling carrier. This is what our model indicates:

The company lacks the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – that increases the chance of a positive earnings surprise.

Zacks ESP: Earnings ESP for Copa Holdings is -21.74%. This is because the Most Accurate estimate is currently pegged at 18 cents while the Zacks Consensus Estimate is much higher at 23 cents.

Zacks Rank: Copa Holdings carries a Zacks Rank #3 (Hold) but that alone is not sufficient to secure an earnings beat. As a caution, we advise investors against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Transportation Gem

With Copa Holdings likely to disappoint, we present below a transportation stock likely to outshine the Zacks Consensus Estimate in the current earnings season as per our quantitative model.

Expeditors International of Washington Inc. (NASDAQ:EXPD) has an Earnings ESP of +1.70% and a Zacks Rank #3. The company will report second-quarter results on Aug 2.