Copa Holdings, S. A. (CPA) carried its momentum into the second quarter and delivered a 36% positive earnings surprise, as the airline continues to benefit from a burgeoning middle class in Latin America. Earnings estimates jumped higher off of the strong quarter, sending the stock to a Zacks #1 Rank (Strong Buy).

Based on consensus estimates, analysts are projecting 25% EPS growth in 2011 and 16% growth in 2012. On top of this growth, Copa pays a dividend that yields a solid 2.6%.

Valuation looks attractive too, with shares trading at just 10.2x forward earnings.

Second Quarter Results

Copa reported second quarter results on August 3. Earnings per share came in at $1.28, crushing the Zacks Consensus Estimate of $0.94. It was an incredible 53% increase over the same quarter in 2010.

Total revenue surged 41% to $428.5 million, well ahead of the Zacks Consensus Estimate of $404.0 million. Operating revenue per available seat mile (RASM) was up 15% to 13.6 cents, while operating cost per available seat mile (CASM) rose just 10% to 11.2 cents (due almost entirely to higher fuel costs).

Operating income was up 73% year-over-year despite a 38% increase in the average price per fuel gallon. The operating margin improved from 14.4% to 17.6% of revenue.

Estimates Rising

Following strong Q2 results, analysts revised their estimates higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy).

Analysts are projecting strong growth for Copa over the next two years. The Zacks Consensus Estimate for 2011 is $6.22, which represents 25% EPS growth. The 2012 consensus estimate is currently $7.20, corresponding with 16% EPS growth.

Solid Income

Copa pays an annual dividend up to 30% of its net income. In May it paid out $1.64 per share, which equates to a 2.6% dividend yield. This was a 50% increase over the previous year and marked the 4th dividend hike in the last 5 years.

Attractive Valuation

Valuation looks compelling with shares trading at just 10.2x forward earnings, a discount to the industry average of 11.4x.

The Bottom Line

With nice tailwinds stemming from an emerging middle class, this airline offers investors plenty of growth potential. Throw in a 2.6% dividend yield, and shares look very attractive at just 10.2x forward earnings.

Read the May 25 article here.

This Week’s Growth & Income Zacks Rank Buy Stocks:

McGrath RentCorp (MGRC) recently turned a triple play: a positive revenue surprise, a positive earnings surprise, and increased earnings guidance from management. It is a Zacks #1 Rank (Strong Buy) stock. McGrath offers solid earnings growth potential and also pays a dividend that yields a stellar 3.6%. Valuation is reasonable too, with shares trading below their historical median. Read the full article.

Community Bank System, Inc. (CBU) didn’t need a bailout or to slash its dividend during the financial crisis. Analysts have been raising their earnings estimates for both 2011 and 2012 after CBU recently delivered its 8th consecutive positive earnings surprise, sending the stock to a Zacks #2 Rank (Buy). The company also pays a dividend that yields a hefty 4.5%. Valuation looks attractive too, with shares trading at less than 11x forward earnings. Read the full article.

ADTRAN, Inc. (ADTN) recently delivered its 11th consecutive positive earnings surprise as sales jumped 23% to reach a quarterly record $184.2 million. Analysts have been revising their estimates higher off of the strong quarter, sending the stock to a Zacks #2 Rank (Buy). Additionally, ADTRAN pays a dividend that yields a solid 1.2%. Valuation is attractive too, with shares trading at just 13.6x forward earnings. Read the full article.

W.W. Grainger (GWW) recently reported its 5th consecutive positive earnings surprise on strong revenue and margin expansion. Management also raised its guidance for the remainder of the year, prompting analysts to revise their estimates higher. It is a Zacks #2 Rank (Buy) stock. The company also pays a dividend that yields a solid 2.1%. Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.

 
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