UPDATE: Dahlman Rose Upgrades Copa Holdings To Buy After Reporting Strong Earnings

Copa Holdings CPA reported strong 1Q11 earnings driven by substantially higher y/y revenues. Revenues were up due to a combination of higher air fares and fuel surcharges. Capacity growth is estimated to be ~20% this year as Copa adds more new cities from Tocumen International Airport in Panama City. Copa is projecting ~20% capacity growth in 2011 and ~16% traffic growth. Pricing is strong and expected to remain strong as the airline had no push-back from its customers as it raised fares during the first quarter. Management is projecting a full year operating margin of 18%-20%; the 1Q11 margin was 24%. Dahlman Rose is estimating 2011 EPS of $5.66 ex items, up from a prior estimate of $3.82. Dahlman's preliminary 2012 EPS estimate is $6.40. Dahlman Rose is raising its rating from Hold to Buy to reflect the better than expected 1Q11 earnings performance, the strong outlook for the remainder of the year and the increased dividend. The company increased the dividend payout ratio to 30% of net income from 20%. The dividend will be paid June 15 to shareholders of record May 31. Dahlman believes the shares can trade to $77, or 12x estimated 2012 EPS, a move of 24% from current prices. CPA closed Thursday at $61.91