Gol Linhas (GOL) Sees Rise in Air-Travel Demand, High Costs Ail – September 6, 2022
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The uptick in air-travel demand (particularly on the domestic front) bodes well for Goal Lines (GOL – Free Report) . However, escalated fuel costs, a primary headwind, are limiting its bottom-line growth.
Key Factor Favoring GOL
The improvement in air-travel demand in Brazil is a huge boon for Gol Linhas, which currently carries a Zacks Rank #3 (Hold). In the second quarter of 2022, revenues from passenger transportation, which accounted for 92.4% of total revenues, surged 237.5% year over year.
Continuing this favorable trend, Gol Linhas’ consolidated traffic in August increased 46.3% year over year. To match the increased demand situation, GOL is expanding its capacity. In the same month, capacity grew 43.9% year over year. Since traffic growth was more than capacity expansion, the load factor improved 1.3 percentage points (p.p) to 81.5% last month.
Upbeat traffic in its domestic markets is leading to a rosy scenario on a consolidated basis. In August, domestic traffic and capacity improved 29.7% and 31.7%, respectively. On the domestic front, 45.1% more passengers boarded GOL’s flights in August 2022.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Key Risks
Escalating fuel costs pose a threat to Gol Linhas’ bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia’s invasion of Ukraine. In the second quarter of 2022, the average fuel price per liter increased 80.5% year over year. Primarily due to significant increases in fuel costs, total operating expenses surged 86.8% year over year. With oil prices moving north, the forecast for current-year fuel price per liter has been raised. The metric is now predicted to be R$5.7 in 2022 (the earlier expectation was R$4.3).
Due to the cost-related woes, GOL’s margins are coming under pressure. The current-year guidance for EBITDA margin has been reduced. The metric is now expected to be 20% (earlier guidance was 24%). EBIT margin is now expected to be 8% (earlier guidance was 10%).
GOL’s low current ratio (a measure of liquidity) is an added concern. At the end of the second quarter of 2022, Gol Linas’ current ratio was pegged at 0.25. A current ratio of less than 1 (current liabilities exceeding current assets) is not desirable as it indicates that the company may have problems meeting its short-term obligations.
Stocks to Consider
Some better-ranked stocks in the Zacks Transportation sector are SkyWest (SKYW – Free Report) , Triton International (TRTN – Free Report) and C.H. Robinson (CHRW – Free Report) .
Continued recovery in air-travel demand bodes well for SkyWest. With an improvement in air-travel demand, SKYW carried 32.7% more passengers in the first half of 2022 than the year-ago level. As a result, the passenger load factor (percentage of seats filled by passengers) expanded 1450 basis points to 82.1% in the first half of 2022.
SKYW’s fleet-modernization efforts are commendable as well. The positivity surrounding the stock is evident from the Zacks Consensus Estimate for current-year earnings being revised more than 100% upward over the past 60 days. SkyWest has a Momentum Style Score of B. SKYW currently sports a Zacks Rank #1.
Triton is being aided by the gradual increase in trade volumes and container demand. Triton expects container demand to remain strong throughout 2022. Measures to reward TRTN’s shareholders through dividends and buybacks instill confidence in the stock further.
Triton has an expected earnings growth rate of 22.4% for the current year. TRTN has outpaced the Zacks Consensus Estimate for earnings in each of the past four quarters. The average beat is 7.5%. TRTN currently carries a Zacks Rank #2 (Buy).
C.H. Robinson is being aided by an improving freight scenario in the United States. Efforts to control costs also bode well. Measures to reward CHRW’s shareholders instill confidence in the stock further.
CHRW has a pleasant earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark in the remaining one). The stock has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 17.6% upward over the past 60 days. C.H. Robinson currently carries a Zacks Rank #2.
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