Latin Airport ASR Rec Lowered
We are changing our recommendation on Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR) from Buy to Hold. Third quarter operating results were positive; however, net income was disappointing. The outlook for the very short-term remains encouraging since passenger traffic continued to increase during the fourth quarter of 2007; nevertheless, the continued increase in oil prices and the difficult economic environment in the U.S. are important short-term concerns.
At its current price, ASR is trading at 15.5x our 2008 revised EPS estimate. This is slightly below the industry mean and median P/E multiple. First, second and third quarters showed some good figures, even though fourth quarter 2007 numbers were less positive. The very short-term outlook remains encouraging thanks to the continued increase in passenger traffic in the beginning of 2008. Moreover, the new terminal at Cancun airport continues to boost non-aeronautical sales.
The possibility of the construction of a new airport in the Mayan Riviera is concerning, but this is just a medium-term problem. However, the difficult economic environment in the U.S. and the continued increase in oil prices are problems that could affect ASR's earnings in 2008. All considered, we are changing our current recommendation on ASR from Buy to Hold. We project that in the following months the stock will trade with a 2008 P/E close to its historical standard, around 17x our earnings estimates, in-line with the industry median. Our target price is $55.25.
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