LATAM Airlines EPS Estimates Southbound: Should You Avoid the Stock?

• LATAM recorded $33 million in Q2 foreign exchange losses due to currency movements, with exposure across Brazilian real and other Latin American currencies despite hedging 64% of Q3 and 42% of Q4 Brazilian real cash flow mismatches
• Aircraft fuel costs surged 93.1% year-over-year to $1.71 billion in Q2, with average fuel prices rising 81.3% to $194.50 per barrel, causing adjusted operating margin to fall from 12.9% to 5.4%
• The stock trades at a forward P/S ratio of 0.83X versus the industry average of 0.52X, indicating expensive valuation, while consensus earnings estimates for 2026-2027 have been revised downward in the past 60 days

LATAM Airlines Faces Mounting Pressures as Earnings Estimates Decline

Key Developments:

LATAM Airlines Group (LTM) is experiencing significant headwinds that have triggered downward revisions to earnings estimates across Q3 2026, Q4 2026, and full-year 2026-2027 projections, signaling diminished broker confidence in the stock.

Major Financial Challenges:

• Currency Exposure: The airline recorded $33 million in Q2 foreign exchange losses due to currency appreciation against the U.S. dollar. While management has hedged 64% of Brazilian real cash flow mismatch for Q3 and 42% for Q4, volatility risks persist across its Latin American operations.

• Fuel Costs: Aircraft fuel expenses surged 93.1% year-over-year to $1.71 billion in Q2, with average all-in fuel prices jumping 81.3% to $194.50 per barrel. This drove adjusted operating margin down sharply to 5.4% from 12.9% in the prior year.

• Capacity Concerns: Continued network expansion raises questions about maintaining pricing discipline and load factors, particularly as capacity growth has outpaced traffic growth.

Valuation and Performance:

LTM trades at a forward price-to-sales ratio of 0.83X versus the industry average of 0.52X, indicating premium valuation. The stock carries a Zacks Rank #4 (Sell) rating.

Market Implications:

Despite management raising 2026 EBITDA outlook and positives including fleet expansion and diversified revenue streams, the combination of elevated fuel costs, foreign exchange exposure, margin compression, and unfavorable valuations makes LATAM Airlines an unattractive investment opportunity. Analysts recommend avoiding or selling the stock given the near-term earnings risks outweigh potential benefits.