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Difficulties making inroads in the struggling Brazilian economy have set back this South American airline, although the long-term picture is rosier, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

On March 19, LATAM Airlines Group (LFL) reported a 97% drop in earnings for 2012, to just $10.96 million.

Higher taxes in Chile, the group’s home market, certainly didn’t help. But the big problem was the cost of integrating the 2012 acquisition of Brazil’s TAM, and the continued doldrums of the Brazilian economy.

The idea—and in the long term, I think this still makes sense—is that LATAM would cement its position as the dominant airline in South America by acquiring TAM, which has roughly a 39% market share in Brazil. But the integration is taking longer than expected, and the projected total synergies of $600 million to $700 million from the deal look like they’ll take three to four years to materialize.

LATAM has been cutting TAM’s capacity in Brazil by shutting down routes that were only 30% to 50% full. That’s had the effect of increasing the load factor in Brazil, but not as quickly as projected, thanks to a slow Brazilian economy.

LATAM reported that Brazilian passenger traffic rose by just 2.4% in February from a year earlier. Route cuts had reduced capacity by 11.9%. The combination resulted in the load factor for Brazil climbed to 75.1% in February, up 10.5 percentage points. But that improved load factor still lags LATAM’s typical pre-acquisition load factor for its system as a whole.

It looks like EBIT margins (earnings before interest and taxes) have started to recover after cratering in 2012. EBIT margins will increase, Wall Street projects, to 5.3% in 2013 and 7.7% in 2014.

But that still doesn’t make this stock a very attractive comparative investment right now. LATAM trades at a premium to Panama’s Copa Holdings (CPA)—a forward price-to-earnings ratio of 24.07 for LATAM versus 12.81 for Copa—and furthermore, Copa shows a projected EBIT margin of 19% in 2013 and 21% in 2014.

I think you need either to let more time pass before buying LATAM, so that the company is closer to those cost synergies and the expected bump in Brazilian passenger traffic from the 2014 World Cup and the 2016 Olympics—or get the stock at a cheaper price. The continued struggles of the Brazilian economy could well provide that lower price this year.

I still like this stock for the long run—that’s why it’s a member of my Jubak Picks 50 long-term portfolio—but I wouldn’t buy it now at this price.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of LATAM Airlines Group as of the end of December. For a full list of the stocks in the fund as of the end of December, see the fund’s portfolio here.

Tickers Mentioned: Tickers: LFL, CPA

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