On Thursday, Seaport Global Securities analyst Daniel McKenzie upgraded shares of Azul SA (NYSE: NYSE:AZUL) from Neutral to Buy, setting a price target of $5.00. The upgrade comes as the stock trades at $2.16, having experienced a challenging period with a 72% decline over the past year. McKenzie's reassessment follows a previous downgrade of the airline in October 2024 due to concerns over long-term pricing and the impact of lessors selling off their equity stakes.
According to InvestingPro data, Azul's stock typically trades with high volatility, with analyst price targets ranging widely from $1 to $14. Subscribers can access 10+ additional ProTips and comprehensive financial metrics for deeper analysis.
McKenzie noted that the airline's pricing had not kept up with rising interest expenses, which necessitated Azul to capture a larger market share from competitors GOL and LATAM—a strategy that was deemed unsustainable at the time.
Additionally, the analyst had been cautious due to the airline's valuation typically falling within the 4-6x EV/EBITDAR range, coupled with Brazil's history of economic and currency volatility. Current InvestingPro metrics show an EV/EBITDA of 24.6x, with the company generating $3.47 billion in revenue over the last twelve months.
Despite these prior reservations, McKenzie now sees a brighter earnings outlook for Azul, justifying a higher multiple. The adjusted price target is based on Azul's enterprise value trading at 4.5 times the firm's projected 2025 EBITDAR of R$7.3 billion. This projection is slightly below the company's own financial target of R$7.4 billion.
The previous Neutral rating by Seaport Global had considered a multiple range of 4x-6x, which suggested a stock price of $1 at the lower end and $11 at the upper end. McKenzie highlighted that the airline's leverage is extreme, which contributes to the sharp upside potential of the stock.
The new Buy rating and $5 price target reflect McKenzie's updated assessment of Azul's financial prospects, suggesting a more optimistic view of the airline's ability to navigate its financial challenges and capitalize on growth opportunities.
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