São Paulo-based airline Azul SA ( AZUL ) shares are trading higher on Thursday.

What Happened: Seaport Research Partners analyst Daniel McKenzie upgraded the stock from Neutral to Buy and announced a price forecast of $5.00.

In October 2024, the analyst downgraded Azul ( AZUL ) due to concerns over long-term pricing and a technical pressure stemming from lessors aiming to monetize their equity stakes.

The analyst noted that pricing was not aligning with rising interest expenses, indicating Azul ( AZUL ) would need to capture a larger market share from GOL and LATAM, a strategy that was deemed unsustainable.

Also, while airlines typically trade at 4-6x EV/EBITDAR, growth, increasing debt, and Brazil’s historical economic and currency volatility made the analyst cautious in both rating and valuation.

Today, Azul ( AZUL ) and Abra, the majority investor of Gol and Avianca, intend to combine their businesses in Brazil.

The potential economics of the deal, including merger synergies, are compelling and bolster the analyst’s confidence in long-term revenue growth.

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Why It Matters: This is not a typical merger. Both airlines are expected to remain separate.

The analyst’s revenue projections are enhanced by network optimization, fleet streamlining, better connectivity, stronger domestic presence to support international expansion, and an improved loyalty program expected to boost corporate market share.

Company management has thus far resolved governance and social issues.

The analyst also argues that the size of Brazil’s traveling population (up to 20 million) supports a two-airline model.

A merger presents a strong economic case for both airlines and their bondholders, the analyst says. Synergies should fall conservatively in the range of 5.5%-6.5%.

A merger prompts the analyst to establish a $5.00 price forecast. That’s based on Azul’s EV trading at 4.5x the 2025 EBITDAR of R$7.3 billion ($1.46 billion).

Price Action: Azul ( AZUL ) is trading higher by 4.4% at last check Thursday, at $2.26 per share.

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