Shares of Azul (AZUL - Free Report) have had a tough run on the bourses lately. In the past three months, shares of this Latin American carrier inched up 0.9% compared with its industry’s 10.1% growth.
Let’s delve deep to unearth the factors hurting Azul’s performance.
We are concerned about Azul's high debt levels. Evidently, Azul's gross debt increased 17.5% year over year at the end of third-quarter 2019. Additionally, high costs and the depreciation of the Brazilian currency are major headwinds for the company.
In the third quarter, operating expenses increased 24.2% owing to a 30.7% rise in salaries, wages and benefits. In the first nine months of 2019, operating expenses increased 24.1%, partly due to the 29.1% rise in costs pertaining to salaries, wages and benefits.
Additionally, Azul incurred a non-cash foreign currency loss to the tune of R$879.4 million during the September quarter, mainly due to the 8.7% depreciation of the Brazilian real. In the first nine months of 2019, the company suffered foreign exchange-related losses to the tune of $769.5 million.
Economic unrest is an added concern for Azul, which competes with the likes of GOL Linhas (GOL - Free Report) , LATAM Airlines (LTM - Free Report) and Copa Holdings (CPA - Free Report) in the Latin-American aviation space. For instance, the truck drivers' strike in Brazil last year significantly disrupted the carrier’s operations. Consequently, the company had to cancel multiple flights due to a dearth of jet fuel in several of its airports.
Estimate Revisions & Zacks Rank
Downward estimate revisions highlight the pessimism surrounding the stock. In fact, the Zacks Consensus Estimate for 2019 earnings has been revised 20.8% downward over the past 60 days.
Given this bleak backdrop, Azul’s Zacks Rank #4 (Sell) is well justified and we believe investors should discard this stock from their portfolios at the moment.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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