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We upgrade our recommendation on TAM S.A. - ADR (TAM) from Neutral to Outperform. The company foresees a strong and growing market in 2012, and hence strives to sustain its competitive position with increased number of flights, destinations and connections.

TAM's fleet development and renovation/restructuring programs are targeted to enhance efficiency besides enforcing strict cost control. The company's focus on economy-travel and retail products, targeted to serve rising demand across the route network, appears promising for future revenue growth.

TAM recorded EPS of $0.34 per ADR and a revenue of $2,000 million in fourth-quarter 2011. Our target price of $28.00 is derived from a P/E ratio of 14.2x 2012 EPS.

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