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Here's Why Investors Should Retain Azul (AZUL) Stock Now

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Azul S.A. (AZUL - Free Report) is benefiting from a steady recovery in air travel demand, especially on the international front.

Factors Favoring AZUL

Azul is seeing a steady rebound in air travel demand, particularly in its domestic markets. Mainly owing to this improvement in international traffic, consolidated traffic, measured in revenue passenger kilometers (RPKs), rose 12% (up 4.2% in domestic and 45.8% on the international front) year over year in third-quarter 2023. Consolidated available seat kilometers (ASK), measuring an airline's passenger-carrying capacity, increased 11.5% from the year-ago quarter’s levels, with a 4.2% rise in domestic capacity and a 46.2% increase in international capacity. With more people taking to the skies, Azul’s passenger revenues, contributing 93.1% to the top line, up 12.4% year over year (on higher total capacity).

Declining operating expenses should boost AZUL's bottom line. Total operating expenses fell marginally from its year-ago levels in third-quarter 2023. The downside was caused by a 28.1% reduction in fuel prices, cost-reduction initiatives and productivity gains. Cost per available seat kilometer (CASK) also fell 10.7% year over year in the third quarter.

Key Risks

AZUL's liquidity position is a concern. Cash and cash equivalent of $136 million at the end of 2022 was lower than the $1,454 million of long-term debt. This implies that the company does not have enough cash to meet the debt burden.

Zacks Rank

AZUL currently carries Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks for investors interested in the Zacks Transportation sector are Air Canada (ACDVF - Free Report) and SkyWest (SKYW - Free Report) .

Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid.  You can see the complete list of today’s Zacks #1 Rank stocks here.

The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand.  

SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.

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