LAN Airlines Strongly Positioned to Weather Economic Storm
A strong financial foundation positions LAN Airlines (NYSE: LFL) as a candidate for growth. With a net result of US$122 million for the last quarter, a BBB international credit rating (Fitch), and only 8% of debt maturing in the short term, the company is in a better position to handle an economic downturn than many of its competitors. For comparison, the regional competitors TAM and Gol reported a negative ROA of (-18.26%) and (-18.72%) respectively, for 3Q ’08.
Research Oracle changed their LAN rating to a STONG BUY on November 26, with an ADR target price of US$11.02, reflecting a 30% upside potential for the coming 6-12 months. The recommendation was founded on a better than estimated 3Q result, an outlook for growth due to expansions in the domestic and regional market (although offset by a slowing global economy), and a positive impact on margins because of lower fuel prices.
LAN reported US$1.204 million in revenues for the quarter ended September 30, 2008, up (+37.7%) from 3Q ’07. Operating Income saw a similar growth, up (+37.6%) year-on-year. This yielded a net income of US$122.1 million for the quarter, and a (+7.34%) ROA.
The following table illustrates earnings for the last quarter, compared to the average quarterly earnings reported in FY 2007.
click to enlarge
In the case of LAN, total net income for 2007 was US$322 million (average US$80.5 million per quarter), which is (34.4%) below 3Q ’08 earnings.
From a technical perspective, LAN is trading in a descending triangle formation, which is usually a bearish sign.
Negative Money Flow supports a bearish outlook in the short-to medium-term. A test of support at 7.50 seems likely. A break-out above 8.75 would signal a test of the 10.00 psychological resistance level.
The company's latest interim statements can be found in our download section.
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