Why Azul Stock Is Falling Today

What happened

Brazil’s COVID-19 response is coming under a fresh round of scrutiny, and the concerns are weighing on the country’s travel and tourism stocks. Shares of Azul (NYSE:AZUL) were down more than 7% on Tuesday on fear the domestic market will take a while to fully recover.

So what

Azul has been one of Latin America’s best-performing airlines throughout the pandemic, gaining share and keeping its operations stable during a period when some of its biggest rivals fell into bankruptcy. Azul today is healthy enough that it is said to be considering consolidating the local market, giving it a real long-term competitive advantage in Brazil and throughout the region.

A plane landing at night.

Image source: Getty Images.

But the situation in Brazil is still dire, and a Washington Post story from the weekend, about the country’s issues in distributing the vaccine, is putting a fresh focus on the challenge and the potential economic ramifications of a new wave. That in turn is hitting stocks like Azul that can only flourish once the pandemic is over and travel begins to normalize.

According to The Guardian, only 13% of Brazilians have been fully vaccinated, compared to half of the United Kingdom population and 56% of Chileans.

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Now what

Arguably a prolonged pandemic could make it easier for Azul to win over its apparent merger target, the Brazil operation of bankrupt LATAM Airlines Group, by making it harder for LATAM to come up with a viable stand-alone plan. But as we saw in 2020 airlines are going to struggle as long as COVID-19 is out of control, and the bull case for Azul will at least be delayed if Brazil can not soon get its act together.

Shares of Azul gained nearly 50% from mid-March until the end of June on growing investor optimism that the stock was well positioned to climb during a recovery. Investors in recent days have gotten a reminder it is not a straightforward path, and the stock is selling off some as a result.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/07/06/why-azul-stock-is-falling-today/

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