I've been watching Mexican regional airport operator GrupoAeroportuario del Sureste (NYSE: ASR) (a.k.a. ASUR) for a while now, and not just because it's fun to say three times fast. It's because I love the travel industry, in theory. People spend a lot of money on vacations, but I'll be darned if I can find a decent investment idea to capitalize on that spending.
Airlines? Please. For every Southwest (NYSE: LUV) or Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU) that's soldiering on, we have a pair of Northwests or Deltas or ... well, just keep naming them. I'm not so impressed with the online travel biz, either. Priceline.com (Nasdaq: PCLN), Expedia (Nasdaq: EXPE), and the rest are engaged in a slugging war as well. The spoils there look limited at best.
But what if you could get a piece of the travel biz where there is no competition? That's one of the beauties of ASUR. It's got a monopoly on airports in its section of Mexico, including Cancun and Cozumel, where it collects on passenger fees, parking, concessions, and all the other stuff we spend on when we're moving from place to place.
The company's recently released third-quarter numbers show both the promise and the problems of the business. It depends heavily on passenger volume. For this quarter, passenger traffic declined by 4.8%, mostly because of Hurricane Emily's effect on Cancun and Cozumel. (Effects from Wilma are currently ongoing and won't be tallied for some time.) Despite the drop in traffic, revenues increased, mostly because of a settlement requiring a lessor to pay back rent. On the bottom line, net income rose 19.7%, coming to $0.52 per ADS, compared with $0.43 for the prior-year quarter.
The trouble with ASUR, for me, is that I can't figure out what I'd like to pay for it. Valuing the stock is tough because it's very difficult to come up with a reasonable growth estimate. Few analysts cover it, and the rates I'm seeing -- around 14% EPS growth -- look fairly sanguine. The business is fairly dependent on the revenue from Cancun, and although the effects of the last hurricane may be temporary, there are always other reasons for people to cut back on their vacations: terrorism fears, economic declines, you name it.
On the other hand, commercial revenues like advertising and food and beverages are growing quickly, and leveraging this part of the business could provide growth and stability even in the face of fluctuating passenger levels.
In the end, there comes a point when cheap begins to look cheap enough. And ASUR's shares have come back from the $40s a few weeks back to near $32 today. If I run some conservative guesses through a simplified DCF calculation, I see $29 as a point to test the winds myself. We're still talking, after all, about a monopoly. Things can only get so bad.
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Seth Jayson digs a monopoly but has yet
to pull the trigger on ASUR shares. In fact, at the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
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