Gol Linhas Aereas Inteligentes S.A. - Value

When you think of low cost airlines you probably think of Southwest. But there's a new kid on the block in GOL Linhas Aéreas Inteligentes S.A. (GOL), the largest low cost airline in Latin America. GOL is a value stock, with a lot of growth, trading at 14x forward estimates.

GOL Linhas is headquartered in Brazil and has grown its Latin America service from 6 aircraft in 2001 to 112 aircraft this year. It flies to 59 destinations including all the major cities in Brazil and 14 other locations throughout the region.

It has captured 40% of the Brazilian market, where demand soared in 2010 as the economy expanded.

In December, GOL saw record demand which grew 4.5% compared with December 2009. It had a load factor of 72.5%.

Guidance for 2011

On Jan 4, GOL announced its outlook for 2011. The company still sees strong demand in 2011, with domestic air traffic expected to increase between 10% and 15% based on estimates of Brazil's 2011 GDP being between 4% and 5%.

GOL expects nominal yields to remain stable compared to 2010. It expects a load factor around 70%.

It will be adding 4 more aircraft in 2011, bringing its total to 115.

Zacks Consensus Estimates Rise for 2011

Analysts are bullish on GOL for 2011. In the last 30 days, the Zacks Consensus Estimate has risen to $1.02 from 95 cents per share.

This is earnings growth of 81% compared to 2010. This is a much higher rate of growth than its U.S. peer Southwest Airlines (LUV) which is expected to grow earnings by 20% in 2011. Southwest, is, of course, a more mature airline in slower growing market.

GOL is scheduled to report earnings on Mar 10.

GOL Has Attractive Valuations

In addition to a value P/E, GOL has a price-to-book ratio of 1.2, which is well within the parameters of a value stock. It is also in line with its peers such as Southwest, whose P/B is 1.4.

The company also has a "value" price-to-sales ratio of 0.5.

Its return on equity of 18.3% also far surpasses that of Southwest at 9.5%.

One extra bonus with GOL is its dividend, which is currently yielding a relatively high 2.7% for investors.

Shares of this Zacks #1 Rank (strong buy) have not yet recovered their 5-year high but have rebounded off the global recession lows.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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