What happened
A Wall Street analyst has concluded that the worst is over for Azul (AZUL -0.34%), and investors are taking notice. Shares of the Brazilian airline are up as much as 14% on Monday following an upgrade over at Bank of America.
So what
The pandemic hit the airline industry hard, and Latin American carriers faced more challenges than most. Unlike many of its rivals, Azul managed to avoid bankruptcy, but the company is still in the process of regaining altitude.
Azul is making progress in fixing its balance sheet. The shares got a boost in March after the company announced it had successfully reworked its lease agreements, freeing up cash and boosting its balance sheet.
Wall Street is taking notice. On Monday, BofA analyst Rogerio Araujo upgraded Azul to neutral from underperform and set a new price target of $11, up from $6.90. Araujo said a combination of Azul's restructuring efforts, strength in the Brazilian real, and lower jet fuel prices have all balanced out the risk and reward to owning the stock.
Now what
Azul's shares are still down more than 75% from their pre-pandemic highs, and an analyst upgrade to neutral is nothing to get too excited about. But the message behind the upgrade is that the worst might finally be over -- and that would indeed be reason to celebrate.
Araujo is correct that conditions are improving for Azul. Investors need to be aware that the full turnaround will take a significant amount of time, and that a global recession or some other macroeconomic shock could reverse the progress, so patience is needed. However, Azul does appear to be heading in the right direction.
