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5 Reasons Why Investors Should Steer Clear of AZUL Stock Now

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·3 min read
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Azul AZUL is currently mired in multiple headwinds, which we believe, caused it to become an unimpressive investment option.

Let’s delve deeper.

An Underperformer: The AZUL stock has declined 46.2% in a year’s time compared with its industry’s 30.7% fall in the same time frame.

Zacks Investment Research
Zacks Investment Research


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Weak Zacks Rank and Style Score: Azul currently carries a Zacks Rank #4 (Sell). Moreover, its current Growth Style Score of D shows its unattractiveness.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 11.5% downward over the past 60 days. For the current year, the consensus mark for earnings has moved 12.6% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.

Bearish Industry Rank: The industry to which Azul belongs, currently has a Zacks Industry Rank of 168 (of 250+ plus groups). Such an unfavorable rank places AZUL in the bottom 34% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.

A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.

Other Headwinds: The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. In the March quarter, average fuel cost per liters surged 57% from the first-quarter 2021 actuals, with oil price shooting up. Due to high fuel expenses, operating costs are northbound. In first-quarter 2022, total operating expenses surged 53.1% year over year.

Azul’s liquidity position is concerning as well. The carrier exited the March quarter with the current ratio (a measure of liquidity) of 0.43, lower than the December reading of 0.50. Decreasing current ratio is alarming. Moreover, a current ratio of less than 1 implies that a company doesn't have enough current assets to cover its current liabilities.

Airline Stocks to Consider

Investors interested in the Zacks Airline industry may consider stocks like Delta Air Lines DAL and Southwest Airlines LUV.

Improved air-travel demand, particularly on the domestic front, is aiding Delta. Anticipating travel-demand to increase further, DAL provided a bullish outlook for the second quarter. DAL expects revenue recovery to accelerate to 93-97% in the second quarter, with unit revenues likely to rise in double digits from the second-quarter 2019 tally.

Delta expects to generate a strong free cash flow in the June quarter. DAL currently sports a Zacks Rank #1. The positivity surrounding the stock is evident from the Zacks Consensus Estimate for current-year earnings being revised 71.4% upward over the past 60 days. DAL has a Growth Style Score of A.

Continued recovery in air-travel demand bodes well for Southwest Airlines. Anticipating a steady improvement in bookings, the carrier expects to reap profits in the remaining three quarters of 2022 as well as for the full year. LUV's management predicts operating revenues to increase 8-12% in the second quarter of 2022 from the comparable period’s level in 2019. LUV is seeing strong bookings for spring and summer travel.

Southwest Airlines currently sports a Zacks Rank of 1. The optimism surrounding the stock is evident from the Zacks Consensus Estimate for current-year earnings being revised more than 100% upward over the past 60 days. LUV has a Growth Style Score of B.


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AZUL (AZUL) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
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