Even if you don’t fly to Rio de Janeiro for Christmas, many Brazilians still fly to travel. It has triggered big advantage in Brazilian airline stocks. While some analysts now view stocks as less profitable, others still see some strong gains ahead for Brazilian operators.
One analyst who is less optimistic right now is Savanthi Syth of Raymond James. He lowered the value of the shares
(GOL) on Thursday for the Best Outstanding Market Performance. While the outlook for stocks looks strong in the long term, he sees “a more balanced risk reward in the medium term.”
Syth lowered its share price after upgrading it to Better Performer just three months ago. It turned out to be a good call. Azul has gained 54% since early September, while GOL is up 39%. Healthy travel demand in Brazil has driven the upside, with leisure-based ticket revenue recovering to pre-pandemic levels while business class incomes have returned to 20%-to-35% from pre-crisis levels. They were some of the strongest rebounds in global markets, outperforming the US and Europe.
Brazilian real also strengthened against the dollar, lifting stocks. The real power benefited Azul and GOL immensely, Syth wrote, as they earned nearly all of their income in local currency while 55% of operating costs were in dollars.
Coronavirus cases and deaths are surging in Brazil, but that does not appear to be deterring demand for air travel, which remains strong towards the height of the summer travel season in the Southern Hemisphere. Brazil’s right-wing government is also much less likely to impose a tight lockdown than other countries.
While Syth has turned neutral, Daniel McKenzie of Seaport Global reiterates Buy at GOL this week. The company said this week that it plans to buy back Smiles’ mileage program for $ 254 million in cash. The deal is expected to close next April, with minimal balance sheet consequences for GOL, McKenzie wrote, and it could be worth an additional $ 4 to $ 5 per share over the long term.
GOL was trading around $ 10.70 per American storage share on Thursday, up 1.4%. McKenzie maintained its $ 15 target but raised its 2021 revenue forecast to 1.60 Brazilian rials per ADS, assuming the deal closes.
He has a Buy rating on Azul and a target of $ 27 on the stock. Shares were trading around $ 23.74 on Thursday, up 0.8%.
GOL said this week that it operated flights in November with nearly 85% capacity, an increase from the previous month, even as it increased capacity 2% to 369 flights a day. The company said ticket sales were strong, adding to confidence in demand for summer travel. A vaccine for the coronavirus is also expected to be distributed in Brazil in the coming months. provide a lift to the economy, and vaccinations are compulsory in the most populous state, São Paulo.
Azul, Brazil’s largest domestic airline, also operated flights with a capacity of nearly 85% in November. It is the only airline on 70% of its routes, and is said to be the leading airline in 73 cities.
GOL must get profit from returns
(BA) MAX aircraft, which was recently recertified by safety regulators. GOL, which flies files the all-Boeing fleet, continue with MAX flights this week. The return of the aircraft will help drive a higher margin in recovery, in part because it is a more fuel-efficient aircraft than older aircraft.
McKenzie liked the restructuring story of both airlines, arguing they needed to have the capacity and financial strength to capture more of the Brazilian domestic market, partly because of their main rivals,
LatAm Airline Group,
operates under bankruptcy protection, although it is expected to come out next year.
“Times are tough today,” he wrote, “but Brazil remains a growing market for airlines.”
Write to Daren Fonda at [email protected]