What happened
Yet another analyst has turned cautious on Gol Linhas Aereas Inteligentes (GOL 1.03%), and investors are taking note. Shares of the Brazilian airline traded down about 14% on Tuesday after the company was the subject of a downgrade.
So what
The global airline industry has been volatile since the pandemic, but Latin America was hit harder than most. Although Gol was able to avoid bankruptcy during the pandemic, a fate that befell some South American rivals, demand has been sluggish and uneven in recent years.
Gol has been on an upswing for most of this year, driven by lower expenses, a reworking of debt obligations, and a resumed interest in travel. Shares of the airline were up nearly 100% for the year as recently as July, but a series of analyst moves have brought the stock back to Earth of late.
On Tuesday, Citi analyst Stephen Trent downgraded Gol to neutral from buy, setting a $4.20 price target on the shares. It is at least the fourth downgrade since early summer, with HSBC, Deutsche Bank, and Goldman Sachs all also going from a buy to a hold following the share rally.
Now what
It is hard to predict the future, but this does feel like a good time to be more selective about what airline stocks to buy. The pent-up demand that followed the pandemic should soon normalize, and tightening economic conditions across the globe could eat into future travel demand. In the face of rising costs, tourists and businesses alike tend to prioritize other needs over travel.
Gol deserves a lot of credit for surviving the pandemic, but the airline faces tough domestic competition from Azul and has a challenged balance sheet with more than $20 billion in debt and only about $672 million in cash as of the end of the most recent quarter. Given the concerns, it is understandable that investors and analysts are now moving to the sidelines.
