It's been a rough year for the airline industry, including Brazil's Azul (NYSE:AZUL), as COVID-19 has decimated travel demand and forced some carriers into bankruptcy. But a Goldman Sachs analyst thinks Azul is a survivor, and his optimism has helped push the company's shares up by as much as 5.5% on Thursday morning.
Airlines around the globe have struggled due to the pandemic, but perhaps no region's carriers have been hit harder than South America. Chile's Latam Airlines Group and Colombia's Avianca Holdings are both in bankruptcy, and Brazil's airlines have seen traffic fall sharply as well.
Azul so far has avoided bankruptcy, and the company is feeling good enough about its liquidity that it isn't sure it will accept offers of assistance from the Brazilian government.
Goldman Sachs analyst Bruno Amorim shares that confidence: On Wednesday, he upgraded shares of Azul from neutral to buy due to the company's success renegotiating with lessors, unions, and other workers to bring down cash burn. Amorim also raised his price target in Azul from $10.70 to $22.
In addition, the analyst upgraded shares of Gol Linhas (NYSE:GOL) and Volaris (NYSE:VLRS), while downgrading Copa Holdings (NYSE:CPA). He's more bullish on Azul and others with more exposure to domestic markets he sees as positioned for faster recoveries, and down on airlines that lean heavily on international routes, which he expects will revive more slowly.
Azul does look like a long-term winner, but the emphasis here is on "long." With each passing day, investors are rightly growing more confident that the airline will be able to survive without a bankruptcy filing, which reduces the risk associated with the shares, but it will be years before the company fully recovers from the pandemic.
Shares of Azul, though up more than 60% from their March lows, are still trading at less than half the price at which they started 2020. That $22 target Amorim set is substantially higher than the company's sub-$14 trading price on Tuesday, and well below the 52-week high of $44.55 that the shares touched in late January.
If you want exposure to a South American travel recovery, there is no better stock to own than Azul. But be warned: Given the amount of time it will take for such a recovery to occur, as well as the continued uncertainty about the Brazilian economy, exposure to South American travel -- even through a relatively safe company like Azul -- is no sure bet.