We upgrade our rating on TAM S.A. (TAM) from Neutral to Outperform based on the proposed merger of LAN Airlines S.A. and TAM, to be christened LATAM with the total expected synergies of US$400 million. The merger, which is expected to close by the middle of fiscal 2011 will make LATAM a strong competitor in the domestic market.
The company also reported decent numbers in the third quarter with EPADS of $1.14, much above the Zacks Consensus Estimate of $0.45. Moreover, the recovery in market conditions and particularly the emerging economies like Latin America including a fall in fuel price compared with 2008 level is encouraging.
The International Air Transport Association (IATA) expects the airline industry to make a profit of $9.1 billion in 2011. Our target price of $28.00 is derived from the P/E ratio of 24.8x 2011 EPS.
TAM SA-ADR (TAM): Free Stock Analysis Report
Zacks Investment Research
