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Here's Why it is Wise to Hold on to GOL Linhas (GOL) for Now

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Shares of GOL Linhas Aereas Inteligentes S.A. (GOL - Free Report) ) have surged more than 100% in a year, outperforming the industry ’s gain of 11.2%.


The carrier recently increased guidance for 2017 owing to the impressive third-quarter earnings numbers and the robust traffic figures till September. The airline’s improved operating and financial performance plus focus on capacity discipline were among other factors responsible for its revised outlook.

The company now expects earnings before interest and taxes (EBIT) margin — a measure for its earnings ability — around 9% (previous guidance had projected the metric between 7% and 9%). The guidance for EBITDA margin stands at approximately 14% (previous guidance had projected the metric between 12% and 14%). The carrier expects capacity (available seat kilometers) to be nearly 0.5% (previous guidance had projected the metric to either remain flat or decline at the most 2% on a year-over-year basis).

Another important metric, load factor (percentage of seats filled by passengers), is now projected to be around 79% (previous forecast had the metric in the range of 77-79%). Going forward, we expect the company’s focus on capacity discipline to result in increasing yields.

The carrier’s outperformance in the third quarter is very encouraging. Earnings per share of $1.49 outpaced the Zacks Consensus Estimate of 47 cents, aided by higher revenues. Net sales came in at $858.8 million (R$2.7 billion), surpassing the Zacks Consensus Estimate of $783.3 million. The top line expanded 13.2% on the back of a strong demand for air travel. Passenger revenues accounting for the bulk of the top line increased 14.1% year over year.

The carrier’s October traffic figures also raise optimism in the stock. Load factor in the month rose to 80.6% from 76% in October 2016. The metric improved as traffic growth exceeded capacity expansion.

The steps taken by the carrier to overcome its struggles also hold promise. The carrier has been undergoing a thorough restructuring process and is also making constant efforts to reduce debt levels. This should bode well for its strong revival in the near term.

In light of these positives, we believe investors should retain GOL Linhas stock for now.

Zacks Rank & Key Picks

GOL Linhas carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are International Consolidated Airlines Group SA (ICAGY - Free Report) , Deutsche Lufthansa AG and C.H. Robinson Worldwide, Inc. (CHRW - Free Report) . While International Consolidated Airlines sports a Zacks Rank #1 (Strong Buy), Deutsche Lufthansa and C.H. Robinson carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares ofInternational Consolidated Airlines, Deutsche Lufthansa and C.H. Robinson have gained more than 34%, 100% and 8%, respectively, in a year.

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