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On Tuesday, Raymond (NSE:RYMD) James analyst Savanthi Syth revised the price target for Azul SA (NYSE: NYSE:AZUL) stock to $5.00, a decrease from the previous target of $6.00, while continuing to recommend an Outperform rating for the airline. Currently trading at $2.31, with a market capitalization of $258 million, Azul’s stock has shown significant volatility, as highlighted by InvestingPro data. The adjustment reflects a cautious but still positive outlook on the company’s financial restructuring and market conditions.
Azul SA has recently achieved a significant milestone by meeting all the requirements for the first two phases of its capital restructuring on January 28. This accomplishment has notably improved the company’s leverage situation, though InvestingPro analysis indicates that short-term obligations still exceed liquid assets, with a current ratio of 0.27. The trading activity up to February 18 allows equity holders the chance to enhance the strike price for the impending debt conversion, which could reduce the potential for equity dilution.
Despite the progress, Raymond James anticipates some delays in Azul’s goal of achieving R$7.4 billion in EBITDA by 2025, mainly due to currency headwinds. Current EBITDA stands at $231.6 million, according to InvestingPro data, which offers comprehensive financial analysis and 10 additional ProTips for subscribers. These headwinds have lessened since the year’s start, although concerns persist regarding the impact of U.S. tariffs. The firm’s 2025 EBITDA estimate for Azul remains largely unchanged at R$7.2 billion, and it does not foresee an early revision of the company’s guidance.
The analyst also noted the current state of the domestic market in Brazil, citing LATAM’s observation that demand remains robust. This is expected to benefit from the return of Porto Alegre, which accounts for approximately 10% of Azul’s domestic revenue, in the fourth quarter of 2024 after the disruptions caused by the Rio Grande do Sul flooding in May.
The report concludes by acknowledging the disciplined capacity management within the industry. However, it points out that GOL Linhas Aéreas is increasing its presence in Sao Paulo. Despite the positive outlook, the volatility in foreign exchange and fuel prices prevents Raymond James from adopting a more bullish stance on Azul SA shares. The firm’s maintained Outperform rating reflects an attractive risk-reward balance for the airline’s stock.
In other recent news, Brazilian airline Azul S.A. has undergone significant financial restructuring, eliminating approximately $1.6 billion in debt and raising $525 million through the issuance of superpriority notes due in 2030. The company has also successfully completed exchange offers for three series of secured notes, with high participation reported. This restructuring has resulted in a decrease in Azul’s financial leverage, dropping the net debt to EBITDA ratio from 4.8 to 3.4.
Furthermore, Azul has been downgraded by S&P Global Ratings following a distressed debt exchange, but the ratings agency has indicated a potential raise in ratings after evaluating Azul’s new capital structure. The company is also considering a merger with competitor airline Gol, contingent on regulatory approvals and the successful conclusion of Gol’s Chapter 11 reorganization plan.
In addition to these developments, Azul received an upgrade from Seaport Global Securities analyst Daniel McKenzie from Neutral to Buy. These recent developments are part of Azul’s ongoing efforts to improve its financial health and operational flexibility.
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