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Why Azul Stock Is Flying High Today

By Lou Whiteman - Jun 7, 2021 at 11:15AM

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An analyst is excited about Azul's prospects to make a big acquisition.

What happened

Shares of Azul (AZUL 7.78%) were trading 6.7% higher as of 11:10 a.m. EDT Monday after some positive words about the Brazilian airline  from an analyst. Azul looks like a winner coming out of the pandemic, and it appears to have opportunities to grow its market share.

So what

Airlines were hit hard in 2020 by the pandemic, and Latin American carriers in particular faced a lot of financial turmoil and even a few bankruptcies. But Azul navigated through the crisis better than most, and is now well-positioned to consolidate some of its struggling rivals.

Planes parked at an airport.

Image source: Getty Images.

The stock has traded up in recent weeks on talk from the airline that it is looking at acquisition opportunities, and Azul has has been heavily linked to the Brazilian operations of bankrupt LATAM Airlines Group. A purchase of that carrier, or just its Brazilian operation, would give it control of more than half of the Brazilian domestic market, creating a duopoly with GOL Linhas Aereas Inteligentes (GOL 7.63%)

Bradesco BBI analyst Victor Mizusaki is excited about the opportunity. On Monday, Mizusaki upgraded Azul from neutral to outperform. The analyst believes an Azul merger with LATAM Brazil is "very likely," and estimates the airline could generate upwards of 9.5 billion Brazilian reals ($1.88 billion) in synergies from the deal.

Now what

Azul has shown itself to be a top operator throughout the crisis, and Mizusaki is right to be excited about the opportunity for it to consolidate its domestic market. But investors need to be aware of the risks involved as well. Operating from bankruptcy, LATAM can only do so much to defend itself from a hostile offer. But if Azul hopes to convince creditors to go with its plan instead of siding with management, it will likely have to make a bid large enough to force LATAM's hand.

Azul is unlikely to fly through this without experiencing some near-term turbulence, but for long-term investors, it would be hard not to like the direction the company is flying.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Azul S.A. Stock Quote
Azul S.A.
AZUL
$8.31 (7.78%) $0.60
Gol Linhas Aéreas Inteligentes S.A. Stock Quote
Gol Linhas Aéreas Inteligentes S.A.
GOL
$4.23 (7.63%) $0.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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