Should Investors Bet on AZUL Stock Despite Q3 Earnings Miss?

Core Viewpoint - Azul S.A. reported lower-than-expected Q3 2024 results, with both revenue and earnings missing the Zacks Consensus Estimate, leading to a significant drop in share price [1][3][17] Financial Performance - In Q3 2024, Azul incurred a loss of $0.32 per share, which was worse than the expected loss of $0.10 [4] - Total revenues were $925.1 million, falling short of the consensus estimate of $953.2 million, despite benefiting from strong demand and ancillary revenues [5] - Passenger revenues, which accounted for 92.8% of total revenues, grew by 4% year-over-year [5] - Cargo revenue increased by 8.8% year-over-year, driven by improved ancillary revenues and solid domestic demand, although partially offset by reduced domestic capacity [6] Capacity and Traffic - Azul has revised its full-year capacity growth expectation down to nearly 6% from a prior estimate of 7% due to domestic capacity reductions from floods and aircraft delivery delays [2] - Consolidated traffic, measured in revenue passenger kilometers (RPKs), rose by 4.3%, with domestic traffic up 8.4% but international traffic down 8.4% [7] - Available seat kilometers (ASK) increased by 3.7%, with domestic capacity rising by 6.8% and international capacity declining by 7% [7] Cost Management and Profitability - Cost per available seat kilometer (CASK) remained flat year-over-year, with a 2.8% decrease when excluding fuel costs [9] - Azul achieved a record EBITDA of R$1.65 billion in Q3 2024, up 6% year-over-year and 57.1% sequentially, with an EBITDA margin of 32% [11] - The company anticipates full-year EBITDA of around R$6.0 billion for 2024 and R$7.4 billion for 2025, supported by strong travel demand and operational efficiencies [12][13] Valuation and Market Position - Azul is trading at a discount compared to the industry based on its forward 12-month price-to-sales ratio, with a Value Score of A [14] - Despite the positive valuation, the stock has underperformed, with a 40.5% decline over the past three months, contrasting with competitors like Copa Holdings and Ryanair [17][19] Earnings Estimates - Earnings estimates have been revised downward, with the current consensus for Q4 2024 at a loss of $1.62 per share, reflecting a trend of disappointing earnings surprises [21][20]