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GOL Linhas Unveils Bullish 2017 View on Multiple Tailwinds


Brazilian carrier GOL Linhas Areas Inteligentes GOL issued an encouraging guidance for full-year 2017 riding on impressive first-quarter results, improved traffic performance as well as its efforts to maintain capacity discipline.

We note that GOL Linhas reported better-than-expected earnings in first-quarter 2017 last month. The carrier’s earnings per share of $1.06 topped the Zacks Consensus Estimate of 15 cents. Moreover, in the first five months of the year traffic – measured in revenue passenger kilometres – increased 1.2%, while capacity contracted. Load factor (percentage of seats filled by passengers) for the same period also improved 220 basis points as traffic increased, while capacity decreased leading to packed planes.

Backed by these tailwinds, shares of the carrier have handily outperformed the Zacks categorized Transportation Airline industry so far this year as it attempts to revive itself. The stock has surged 72.8%, compared with the industry’s gain of 12.7%.

Given this bullish backdrop, this Sao Paulo-based carrier released an improved outlook for full-year 2017. The company now expects earnings before interest and taxes (EBIT) margin – a measure of the company's earnings ability- in the band of 7% to 9% (previous view: 6% to 8%). The guidance for EBITDA margin has been raised to the band of 12% to 14% from the earlier view that projected the metric in the range of 11% to 13%.

In addition, GOL Linhas, which is projecting an average fleet size of 115, still expects capacity (available seat kilometers) to either remain flat or decline up to 2% on a year-over-year basis. With the volume of departures expected to decline in the band of 3% to 5%, the carrier is trimming the number of seats in line with its objective to maintain capacity discipline. Total seats are still projected in the range of -3% to -5%. Another important metric, load factor (% of seats filled by passengers) is still projected in the range of 77% to 79% in 2017. We expect the company’s focus on capacity discipline to result in increasing yields in the near term.

GOL Linhas, which competes with the likes of Copa Holdings CPA, LATAM Airlines Group LTM and Azul SA AZUL in the Latin American space , expects to exit the year with earnings per ADS in the band of 57 cents to 78 cents which is an improved figure than that of 2016.

Moving ahead, this Zacks Rank #3 (Hold) carrier’s improved outlook might boost the GOL Linhas stock further. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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