2 Transportation Stocks to Buy for Higher Highs: CPA, ESEA

Amid the stock market’s historic rebound, transportation sector stocks have joined the rally, with a few ADRs (American Depository Receipts) standing out in particular in airline operator Copa Holdings CPA and container shipping company Euroseas ESEA.

Hitting new 52-week peaks in June, what makes these top-rated transportation stocks stand out the most is their generous dividends, especially considering they look poised to reach higher highs.

Copa’s Industry-Leading Margins

Headquartered in Panama City, Panama, Copa Airlines has become the premier airline in Central America, flying to over 60 destinations in North and South America and the Caribbean. Capitalizing on increased travel demand following the pandemic, Copa has been able to sustain operating margins of more than 20%, making it one of the most profitable airlines globally.

Notably, this trumps most Latin American airlines, including LATAM Airlines Group LTM and many of its U.S. counterparts, with Delta Air Lines DAL and United Airlines UAL having the highest operating margins among domestic carriers at around 10-12%. Considering Copa’s outstanding operational performance, it's very appealing that the airline expects to boost its capacity by 7-8% this year.

Correlating with such, Copa Holdings’ EPS is currently slated to spike 14% in fiscal 2025 to $16.64 per share. Plus, FY25 EPS estimates are up 6% in the last 60 days from projections of $15.60.

Euroseas’s Strategic Fleet Management

Like Copa Holdings, Euroseas is highly profitable thanks to its efficient fleet management and strong market position, having operations out of Athens, Greece, for more than 130 years. This allows Euroseas to benefit from strong charter rates, which significantly boost revenue. Furthermore, Euroseas strategically manages its fleet, selling older vessels and acquiring newer, more efficient ships to optimize profitability.

Speaking of such, Euroseas recently announced the sale of its 2005-built containership, M/V Marcos V, for $50 million. Euroseas’s bottom line is expected to dip 2% in FY25 to $14.50 per share, but EPS estimates are slightly up over the last week and have now risen 2% in the last 60 days.

Euroseas & Copa’s Cheap P/E Valuation  

Largely suggesting more upside in Copa and Euroseas stock is that CPA and ESEA trade at just 6.4X and 2.8X forward earnings, respectively. Reassuringly, this also alludes to the notion that the risk-to-reward is still favorable even with CPA shares soaring over +20% year to date and ESEA up more than +15%.

Euroseas & Copa’s Enticing Dividends

Aforementioned, the cherry on top is that CPA and ESEA offer very generous annual dividends of more than 5%. Copa’s dividend further separates the company from its peers, as many airline stocks don’t offer a payout to shareholders due to high operating costs.

While many transportation-shipping stocks offer appealing dividends, ESEA has a 6.36% yield that towers over its Zacks industry average of 2.43%. Even better, Euroseas’s payout ratio is only at 16%, indicating there is plenty of room for future dividend hikes.  

Bottom Line

Copa Holdings stock currently sports a Zacks Rank #1 (Strong Buy) with the Average Zacks Price Target of $152 a share, suggesting 41% upside for CPA. Meanwhile, Euroseas stock is sporting a Zacks Rank #2 (Buy) with the Average Zacks Price Target of $56 a share, offering 37% upside for ESEA.

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This article originally published on Zacks Investment Research (zacks.com).

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