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On Wednesday, Raymond (NSE:RYMD) James reaffirmed its positive stance on Azul SA (NYSE:AZUL), maintaining an Outperform rating and a $4.00 price target. According to InvestingPro data, the stock is currently trading at $0.63, down nearly 90% over the past year, with analysts setting price targets ranging from $1.20 to $4.50. The airline’s first-quarter adjusted EBIT/EBITDA fell short of both Raymond James and the consensus estimates, despite reporting revenues that exceeded expectations. The flat year-over-year RASK (revenue per available seat kilometer) comes in the context of a 16% increase in capacity. The company’s trailing twelve-month revenue stands at $3.16 billion, with a modest growth rate of 5.24%.
The underperformance in the first quarter was attributed in part to a temporary surge in irregular operations (IROPs), which were caused by issues related to original equipment manufacturer (OEM) performance and supply chain disruptions. However, the company has noted a substantial improvement in operational performance starting in March.
Azul’s immediate liquidity was reported at R$2.3 billion at the end of the first quarter, equating to roughly 11.6% of the trailing twelve months’ revenue. This financial position is expected to be strengthened by recent strategic moves. In April, the company issued common and preferred shares as part of a negotiation concluded in 2024. Additionally, Azul secured R$600 million in extra funding to support its short-term liquidity from existing bondholders.
Despite the first-quarter results, Azul has not provided an update to its 2025 outlook. The previous adjusted EBITDA guidance stands at R$7.4 billion, which is ahead of the R$7.2 billion estimate held by Raymond James and the consensus. This guidance suggests confidence in the airline’s financial trajectory despite the recent operational challenges. InvestingPro analysis indicates the stock is currently undervalued, with 13 additional exclusive ProTips available for subscribers looking to dive deeper into Azul’s financial health and market position.
In other recent news, Azul S.A. has been in the spotlight due to several financial developments. The airline has completed a substantial capital increase, raising approximately $1.66 billion through a primary public offering of preferred shares. This initiative was part of a broader strategy to bolster the company’s financial position, with the new shares expected to start trading on the B3 exchange. Additionally, Azul secured around R$600 million in short-term financing from existing bondholders, aimed at addressing liquidity needs amid ongoing debt restructuring efforts. These notes are backed by receivables from Azul’s passenger airline business and have a six-month maturity.
Fitch Ratings recently downgraded Azul’s ratings to ’CCC-’ due to liquidity concerns and challenges in securing new financing. Despite operational improvements, the company has struggled to access credit lines essential for supporting its negative free cash flow. Azul’s financial maneuvers have included a significant conversion of debt into equity, resulting in the issuance of new shares to aircraft lessors, bondholders, and shareholders. The company has stated its commitment to working with stakeholders to enhance its financial standing. Analysts from Fitch have noted that Azul’s limited geographic diversification and financial flexibility put it at a disadvantage compared to regional peers.
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