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Azul Surges 71% in Six Months: What's Driving the Stock?

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Shares of Azul S.A. (AZUL - Free Report) have fared well in the past six months. The stock has rallied 71.2%, against the industry’s decline of 11.4%.

Reasons for Robust Price Performance

The Latin American carrier is being aided by solid demand for air travel, which has led to higher passenger revenues. Notably, passenger revenues, which contributes significantly to the top line in 2018 (97.4%), increased 17.9% on a year-over-year basis during the year. The same is expected to be strong in 2019 as well, courtesy of upbeat demand.

Moreover, Azul issued an encouraging outlook for unit costs in 2019, driven by fleet transformation efforts to include next-generation jets. The metric is expected to decline 1-3% year over year. The carrier aims to add 21 next-generation aircraft and replace 15 older jets in 2019.  Consequently, half of Azul's capacity in 2019 will be next-generation jets. Also, the carrier provided an update on capacity growth in 2019. Consolidated capacity is expected to expand 18-20% year over year and domestic capacity is estimated to grow in the range of 16-18%. Also, international capacity is projected to increase 20-25%.

Furthermore, the company is undergoing a free transformation process of adding Rodger Jets next generation aircraft. As part of this strategy, Azul announced an additional order for 21 E2s (Embraer airplanes), totaling the firm order for this type of aircraft to 51. These aircrafts are expected to reduce costs by approximately 26%. The fleet transformation process is anticipated to be completed by the end of 2021.  In February 2019, the company announced the acceleration of fleet renewal and modernization plan. This is another positive factor, which is anticipated to expand margin by lowering costs and generating higher revenues. In line with this, Azul anticipates operating margin in the range of 18-20% in 2019.

Bullish Readings & Zacks Rank

The positivity around this Zacks Rank #1 (Strong Buy) stock can be gauged from the Zacks Consensus Estimate being revised 8.3% upward in the past 30 days for 2019 earnings.

The company’s impressive Momentum Score of A further highlights short-term attractiveness.

Other Stocks to Consider

Investors interested in the Zacks Transportation Sector may consider SkyWest, Inc. (SKYW - Free Report) , Frontline Ltd. (FRO - Free Report) and Fly Leasing Limited , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

All the three stocks boast an impressive surprise history. SkyWest outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.9%.  Frontline outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average being 31.6%. Fly Leasing outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 42.2%.  

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