The S&P 500 hit a 52-week high of 6,017.31 on Nov. 11. In six days of trading, it's lost 1.7%, bringing the index’s momentum to a temporary halt.
It’s unsurprising that the differential between yesterday’s 52-week highs and lows was only 22--98 versus 76.
One of the 98 hitting a 52-week high is Corporacion America Airports S.A. (CAAP), a Luxembourg-based airport operator. The infrastructure stock has hit a 52-week high 20 times in the past 12 months. It now trades within 2% of its all-time high.
It’s not too late to buy. Here’s why.
Forget Valuation for a Second
Except for a couple of dips in 2022 and 2023, CAAP stock has been on an ongoing uphill climb from a low of $1.61 in March 2020, the decline experienced at the onset of Covid-19. So, its shares are up 1,124% from the low in less than four years.
Naturally, when a stock makes that much of a move, investors immediately assume its valuation has gotten ahead of itself. Maybe. Or, maybe, the business is merely performing at a very efficient level.
But before we consider which of the two, let’s consider its business and how it makes money.
The company's history dates back to 1998, when it acquired the concession rights to operate 33 airports in Argentina. Here in Canada, where I live, and in most of the U.S., airports aren’t privately owned, but rather, they’re run by government agencies.
Outside these countries, privatization has been ongoing for decades. America Airports has been a beneficiary of this change in ownership. Since buying the airports in Argentina, it’s grown to operate 52 airports in six countries, serving 81.1 million passengers in 2023.
It makes money in the following ways:
“We derive the majority of our revenue from fees charged to departing passengers and landing and parking fees charged to aircraft operators for the use of our premises and for certain aeronautical services,” the company’s website states.
“We also earn revenue from commercial services, including warehouse usage, duty free, retail and food and beverage shops, advertising and parking fees.”
As you can imagine, Covid put a big dent in its business model. No passengers equals no revenue. Ask anyone who owned airline and cruise stocks about the difficulties endured during and after the pandemic.
Q3 2024 Results Come Out After Today’s Close
The company reports third-quarter results this afternoon after the markets close. It will hold a conference call tomorrow at 10:00 a.m.
On Nov. 18, it reported passenger traffic for October. Excluding Natal Airport in Brazil, whose concession agreement was terminated with compensation in February, total passenger traffic decreased by 1.6%. As a result, total passenger traffic through 10 months is down 1.1%. The cause of the decline is lower domestic travel in Argentina, partly offset by higher international travel in Italy and Argentina. On the plus side, cargo volume through October is up 5.6% to 318,600 tons.
As America Airports points out in its October press release, it served 84.2 million passengers in 2019, which I believe was a record. Based on 65.44 million passengers through the end of October, it will come in at around 78.53 million by the end of the year, down 6.7% from 2019.
So, it’s likely that its revenue and operating profits in the third quarter will be slightly down from Q3 2023. In Q2 2024, revenues were $366.1 million, 0.2% higher than a year earlier, with operating income of $92.9 million, 15.9% less than a year ago.
The good news from the second quarter was that its revenue per passenger increased by 9%. At the same time, its net debt to its adjusted EBITDA for the trailing 12 months through June 30 was 1.14x, down from 1.42x a year ago.
Argentina’s macroeconomic problems have resulted in lower domestic passenger traffic. There were 5.9 million passengers in the second quarter, 19.0% lower than Q2 2023. However, its international traffic was 2.8 million, 9.3% higher.
However, as CEO Martin Eurnekian said in the Q2 2024 conference call, the real money is in the international passengers.
“As a reminder, while domestic traffic comprises around two thirds of total traffic in the country, over 90% of Passenger Use Fees are generated by international traffic and are fully linked to the US dollar. In July we saw an improved performance, with international traffic growing 14% and domestic traffic declining 12%.”
So, even in Argentina, business is more robust than it looks.
So Why Is CAAP Stock Up So Much?
I can think of two reasons.
First, Argentina’s economy is showing signs of recovery. Banco Bilbao Vizcaya Argentaria’s (BBVA) October 2024 economic outlook for the country said, “The slowdown in inflation has stalled since May, remaining around 4% monthly, and economic activity shows signs that the recession may have ended in Q2 2024.”
The bank expects Argentina’s GDP to increase by 6% in 2025. As always, the markets look forward, not in the rearview mirror.
Secondly, it remains a value play in a market that offers few good opportunities for a good deal. On Nov. 5, the Globe and Mail published a piece about 10 value-focused industrial stocks worth investing in. America Airports was one of them. According to the LSEG Starmine Value Momentum model, it scored 96 out of 100.
According to S&P Global Market Intelligence, the four analysts covering CAAP stock rate it Outperform, with a $21.50 median target price, about 10% higher than where it’s currently trading. An unexpectedly positive Q3 2024 report should push that higher. It trades at 9.5x the 2025 EPS estimate of $2.06.
As I write this in late Wednesday trading, the Jan. 17/2025 $22.50 call has an ask price of $0.55, a 2.4% downpayment on the $2,305 you’ll pay to exercise your right to buy 100 shares of CAAP stock. The ITM (in the money) probability is 21.1%. However, you can double your money by selling before it expires in 58 days if it appreciates $2.08 (10.8%).
The risk/reward proposition seems fair. I like the stock’s chances in 2025.
