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http://www.forbes.com/2007/02/28/gol-brazi...artner=yahootix

 

 

John Christy, editor of Forbes International Investment Report, recommends buying shares of Brazilian discount airline operator GOL Linhas Areas Inteligentes S.A. (nyse: GOL - news - people ).

 

Sao Paulo, Brazil-based GOL provides low-cost, low-fare passenger service on more than 610 daily flights between major Brazilian cities and destinations in Argentina, Bolivia, Chile, Paraguay, Uruguay and Peru. In addition to offering daily flights to more destinations than any other domestic airline in Brazil, it also provides charter and cargo services.

 

Click here for stocks in Brazil, Russia, India and China selling for big discounts after Tuesday's global meltdown…now in Forbes International Investment Report.

GOL has plans to start service to Venezuela and Colombia, and to fly to every country in South America by 2010.

 

On Jan. 30, GOL reported fourth-quarter net income of $43.4 million, or 22 cents per share. On a local currency basis, net income was down 45.7% versus the same quarter in 2005. For the overall year of 2006, profits rose 11% to $266 million, or $1.36 per share.

 

The drop in quarterly profit was due to flight cancellations and delays in the wake of a September 2006 midair collision between a GOL Boeing (nyse: BA - news - people ) 737 and a private jet over the Amazon rainforest that killed all 154 people on board the GOL plane. In addition, Brazilian air traffic controllers staged work slow-downs in November, plus faulty air control equipment in Brasilia delayed almost 40% of flights in December.

Despite GOL’s load factor falling from 74.2% to 67.9% in the fourth quarter (on a year-over-year basis), its share of Brazil's domestic air travel market jumped from 30% to 37%. Competitor TAM Linhas Aereas (nyse: TAM - news - people ) has a 49% share.

 

GOL management expects to grow revenue from operations by 45% in 2007, and to reduce costs by 9%. It also plans to boost its fleet size to 80 planes from its current fleet of 65 and to operate 101 craft by 2012.

 

Christy is bullish on GOL because of valuation and its compelling value proposition for Brazilian travelers.

 

“Brazil is just a tad smaller than the United States in terms of land mass, and while there's no question that flying has become a nightmare in this country, count your blessings,” he says. “Tell me your worst regional air travel story, and I’ll bet it cannot top being stuck on a bus in the middle of the Amazon, or whatever travails Brazilians must endure on their short hops form point A to point B.”

 

Christy says that GOL is the answer to Brazilians’ travel needs, and that it takes a successful global business model from Southwest Airlines (nyse: LUV - news - people ), JetBlue Airways (nasdaq: JBLU - news - people ) and Ryanair (nasdaq: RYAAY - news - people ) and “plops it down in Latin America's biggest country.”

 

U.S. American depositary receipts for GOL closed on Wednesday at $28.45, or 14.2 times expected 2007 earnings of $2.00 per share. Based on analysts’ estimates of 25% annualized growth for the next five years, the stock has a compelling price-earnings growth (PEG) ratio of 0.57.

 

Over the past 12 months, the ADRs are down 13.5%, and dropped 7.1% during Tuesday's global downdraft. They traded as high as $41.25 last May.

 

Click here for more investment analysis and stock recommendations from John Christy in Forbes International Investment Report.

 

The investing idea above was recommended in Forbes Newsletters’ FREE Stock of the Week email. Click here to receive Stock of the Week next Monday morning, instead of waiting until mid-week.

 

Send comments and questions to newsletters@forbes.com.

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