Gol Linhas Aereas Inteligentes SA (GOL) is a Brazilian airline that has barely weathered a turbulent 2013. Shares of the bargain-basement carrier have been battered by very weak earnings reports and even whispers of government intervention or bankruptcy.
THE NUMBERS
The company posted a net R$1.5 billion loss in 2012, a contraction representing double the losses posted in 2011.
This collapse may very well represent a buying opportunity; however, as Brazilian President Dilma Roussef has not been shy in her efforts to prop up struggling domestic companies. Roussef and the Brazilian government will be especially keen on maintaining the airline (Brazil’s second largest) as both the 2016 Olympics and the 2014 World Cup Tournament are fast approaching.
PARTNERSHIPS
Despite the recent pains the company maintains high aspirations, having recently courted favor from the SkyTeam airline alliance and expanded its partnership with Delta (DAL). GOL can hope that these international connections will provide an opportunity to outstrip the local competition that has resulted in the plummeting domestic rates that have garroted GOL’s profit margins.
In the meantime, though, GOL has proposed cutting 8-10% of its domestic traffic and increasing prices on the remaining seats. As with most air carrier markets worldwide, the Brazilian market is oligopolistic, and GOL is not the only airline feeling the squeeze. Cooperative efforts market-wide will limit the damage caused to GOL by these changes to a minimum.
INSTITUTIONAL INTEREST
The theory that the company will soon find a bottom and rebound has found support among hedge funds and other ‘smart money’ investors.
As of May 30th, an insidermonkey.com report announced a 140% quarterly increase in the amount of bullish hedge fund interest in the stock, and Goldman Sachs on Monday set a price target of $5.20 per share, which is well above current valuation. The fundamental evidence shows very little evidence that the shares should continue to plummet as it is doing now, and this evidence coupled with increased institutional confidence in the stock, signals that a comeback is likely for GOL in the near-term.
THE TRADE
Trade: On 6-10-13 a trader bought 10,000 GOL Jan 2014 4 Calls for $.80 debit
Risk: $80 per 1 lot
Potential Reward: Unlimited
Cash Outlay: $800,000
This is a very speculative play as the chart looks very weak, but I bought these Calls for $.80 as I think the stock can get back to $6 by the end of the year.
