What happened
Brazil's Azul (AZUL +0.00%) has emerged from the pandemic as one of Latin America's strongest airlines, and Wall Street is taking notice. Shares of Azul climbed more than 12% after Goldman Sachs upgraded the airline and named it the bank's top pick in the region.
So what
Azul is a relative newcomer to the region, founded in 2008 by one-time JetBlue Airways CEO David Neeleman. The pandemic hit the entire airline industry hard, sending a number of Latin American carriers into bankruptcy. But Azul held up relatively well, and has been gaining market share in recent years.
Goldman Sachs analyst Bruno Amorim thinks the best is yet to come. Late Tuesday, the analyst upgraded Azul to buy from neutral and upped his price target for the shares to $18.30 from $14.90.
The analyst said there is "positive asymmetry" between Azul's EBITDA expansion going into 2024 and the stock's weakness. Azul has had success renegotiating its debts and decreasing balance sheet risk, creating what Amorim sees as a buying opportunity for investors.
With the upgrade, Goldman named Azul its new top pick among Latin American airlines.
OTC: AZUL
Key Data Points
Now what
Azul shares still trade nearly 75% below where the stock was prior to the onset of the pandemic. The recovery has been slower in Latin America, and macroeconomic concerns about the global economy are more pronounced in Azul's home markets. But the company has established itself as a survivor, and should have the wherewithal to survive any headwinds on the horizon.
There's a lot of risk involved in investing in individual airline companies. Demand for travel tends to be highly cyclical, and airlines have historically had trouble staying airborne when times get tough. But Azul's deft handling of the pandemic shows management knows how to navigate through a crisis, and as Amorim notes, the stock appears cheap relative to the opportunity, trading at just 0.278 times expected revenue.
For those who are willing to accept the risk that comes with hopping aboard an airline stock, Azul looks like an intriguing opportunity.
