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GOL Linhas Rides on Solid Passenger Revenues & Fleet Upgrade

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We have issued an updated research report on GOL Linhas Aéreas Inteligentes S.A. (GOL - Free Report) on Jan 2. Strong passenger revenues and fleet modernization efforts buoy optimism on the stock.

Shares of the company have fared well in a year’s time. The stock has rallied 37.8%, against the industry’s decline of 23.2%.

Factors Influencing GOL Linhas’ Performance

The Sao Paulo, Brazil-based airline company is gaining momentum on the back of solid demand for air travel, which leads to strong passenger revenues. Passenger revenues rose 11.5% year over year in the first nine months of 2018. Robust passenger revenues are expected to boost the top line in the final quarter of 2018 as well. The increase in average fares is also aiding GOL Linhas’ top line. The metric increased 8.1% in the first nine months of 2018. Additionally, the carrier might be able to strengthen marketing capabilities and generate strong revenues with possibilities of additional foreign ownership.

Furthermore, we are impressed by GOL Linhas’ efforts to modernize fleet and lower debt levels. To this end, the company recently announced the acceleration of fleet renewal and modernization plan on account of operational gains as well as buoyant market conditions. The carrier plans to expedite fleet renewal process with Castlelake and Apollo Aviation by replacing 13 Boeing 737 Next Generation (NG) aircraft with Boeing 737 MAX-8 aircraft in the next few years. The sale of these 13 737-800 NGs will reduce the Brazilian carrier’s net debt by approximately R$1.1 billion.

Moreover, the low-cost carrier is focused on capacity discipline and revenue management. As a result, the company posted impressive passenger unit revenues (PRASK) in the first nine months of 2018. The metric expanded 8.2%, while total unit revenues (RASK) climbed 7.3% in the period. Notably, the Zacks Consensus Estimate has been revised 42.9% upward in the past 90 days for current-quarter earnings. The favorable estimate revision reflects brokers’ optimism in the stock.

Considering the wealth of information at their disposal, it is in the best interest of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Additionally, GOL Linhas, which carries a Zacks Rank #2 (Buy), flaunts an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores. Our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choice.

Other Stocks to Consider

Investors interested in the broader Transportation Sector may consider Azul S.A. (AZUL - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) and Fly Leasing Limited (FLY - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Azul and Spirit Airlines have surged 79.4% and 56% in the past six months, respectively. Meanwhile, Fly Leasing boasts an impressive earnings history, outpacing the Zacks Consensus Estimate in three of the trailing four quarters, the average being 13.5%.

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