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Here's Why Investors Should Give AZUL Stock a Miss Now
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AZUL’s (AZUL - Free Report) financial stability is challenged by escalated operating expenses and weak liquidity. Elevated labor costs are putting a strain on the company’s bottom line, making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
AZUL: Risks to Watch
Southward Earnings Estimate Revision:The Zacks Consensus Estimate for current-quarter earnings has been revised 70% downward in the past 60 days. For the current year, the consensus mark for earnings has moved 35% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank: AZUL currently carries a Zacks Rank #4 (Sell).
Unimpressive Price Performance: AZUL shares have declined 57.3% in the past year against the industry’s 31.3% rise.
Image Source: Zacks Investment Research
Bearish Industry Rank: The industry to which AZUL belongs currently has a Zacks Industry Rank of 186 (out of 251). Such an unfavorable rank places it in the bottom 26% of 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. Reckoning the industry’s performance becomes imperative.
High Costs: The northward movement in operating expenses is hurting AZUL’sbottom line, challenging its financial stability. The surge in operating expenses was caused by increased labor costs. In the second quarter of 2024, total operating expenses rose by 1.5% compared to the second-quarter 2023 actuals.
Labor costs comprising salaries and benefits, accounting for 17.6% of the total operating expenses, rose 15.4% year over year.
The adverse impact of the Rio Grande do Sul floods and the temporary reduction in international capacity, which fell 8% year over year, continue to affect AZUL’s operations. As a result, the top line fell 2.3% year over year.
AZUL exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.28. A current ratio of less than 1 is not desirable as it indicates that the company does not have sufficient cash to meet its short-term obligations.
Downgraded Credit Rating: Due to weaker-than-expected first-half 2024 results and lackluster liquidity, the rating agency S&P downgraded its global scale issuer credit rating on AZUL to “CCC+” from “B-” and the national scale rating to “brBB-” from “brBBB-.”
The rating agency’s negative outlook on AZUL reflects that ratings may be lowered further in the next six to 12 months if the Brazilian carrier’s cash flow generation and ability to access long-term financing weaken. The rating agency forecasts AZUL’s free operating cash flow deficits after lease payments of about R$1.6 billion this year and 2025.
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Westinghouse Air Brake Technologies (WAB - Free Report) .
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 14.2% in the past year.
WAB carries a Zacks Rank #2 (Buy) at present and has an expected earnings growth rate of 26% for the current year.
The company has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters. The average beat is 11.8%. Shares of WAB have climbed 61% in the past year.
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Here's Why Investors Should Give AZUL Stock a Miss Now
AZUL’s (AZUL - Free Report) financial stability is challenged by escalated operating expenses and weak liquidity. Elevated labor costs are putting a strain on the company’s bottom line, making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
AZUL: Risks to Watch
Southward Earnings Estimate Revision:The Zacks Consensus Estimate for current-quarter earnings has been revised 70% downward in the past 60 days. For the current year, the consensus mark for earnings has moved 35% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank: AZUL currently carries a Zacks Rank #4 (Sell).
Unimpressive Price Performance: AZUL shares have declined 57.3% in the past year against the industry’s 31.3% rise.
Image Source: Zacks Investment Research
Bearish Industry Rank: The industry to which AZUL belongs currently has a Zacks Industry Rank of 186 (out of 251). Such an unfavorable rank places it in the bottom 26% of 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. Reckoning the industry’s performance becomes imperative.
High Costs: The northward movement in operating expenses is hurting AZUL’sbottom line, challenging its financial stability. The surge in operating expenses was caused by increased labor costs. In the second quarter of 2024, total operating expenses rose by 1.5% compared to the second-quarter 2023 actuals.
Labor costs comprising salaries and benefits, accounting for 17.6% of the total operating expenses, rose 15.4% year over year.
The adverse impact of the Rio Grande do Sul floods and the temporary reduction in international capacity, which fell 8% year over year, continue to affect AZUL’s operations. As a result, the top line fell 2.3% year over year.
AZUL exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.28. A current ratio of less than 1 is not desirable as it indicates that the company does not have sufficient cash to meet its short-term obligations.
Downgraded Credit Rating: Due to weaker-than-expected first-half 2024 results and lackluster liquidity, the rating agency S&P downgraded its global scale issuer credit rating on AZUL to “CCC+” from “B-” and the national scale rating to “brBB-” from “brBBB-.”
The rating agency’s negative outlook on AZUL reflects that ratings may be lowered further in the next six to 12 months if the Brazilian carrier’s cash flow generation and ability to access long-term financing weaken. The rating agency forecasts AZUL’s free operating cash flow deficits after lease payments of about R$1.6 billion this year and 2025.
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Westinghouse Air Brake Technologies (WAB - Free Report) .
C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 25.2% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 14.2% in the past year.
WAB carries a Zacks Rank #2 (Buy) at present and has an expected earnings growth rate of 26% for the current year.
The company has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters. The average beat is 11.8%. Shares of WAB have climbed 61% in the past year.