IAG, easyJet, Plan B and $100 oil

There are multiple influences on stock prices right now, summarised by our City reporter in this analysis of today’s big movers.

Investors bought into the WH Smith (LSE:SMWH) recovery story today, but not all stocks with exposure to easing Covid restrictions were higher as attention turned to oil price headwinds.

One of the biggest falls of the blue-chip session came from the most popular of the re-opening stocks, with British Airways owner International Consolidated Airlines (LSE:IAG) down 2.5% despite growing optimism over a summer rebound in passenger numbers.

An updated “buy” recommendation from Liberum analyst Gerald Khoo failed to help as sentiment was hit by another rise in Brent crude futures to above $88 a barrel. As the global economy builds again after Omicron, and as some OPEC+ members struggle to keep up with production targets, there's every chance the price will hit $100 a barrel.

• Our outlook for 2022
• 10 stocks that could protect investors from inflation
• Subscribe for free to the ii YouTube channel for our latest share tips and fund manager interviews

Khoo notes that aviation fuel prices have more than doubled in the past year, creating short-term pressure on earnings estimates at a time of limited pricing power. However, he remains confident in the ability of IAG and low-cost counterpart easyJet (LSE:EZJ) to withstand this latest storm.

He has “buy” recommendations on IAG, easyJet and Ryanair (EURONEXT:RYA), believing that the “strong get stronger in crises”, but “sell” ratings on Air France-KLM (EURONEXT:AF) and Lufthansa (XETRA:LHA).

Khoo said injections of private and government capital that kept much of the industry alive during the pandemic now left airlines facing a protracted recovery because of excess and economically unviable capacity.

However, he added: “Assuming international travel restrictions continue to ease, with Omicron appearing to be a brief but painful blip, we believe the industry is now on the path to recovery.”

IAG shares today fell 2% or 3.66p to 161.98p compared with Liberum's new price target of 200p, which is down from 215p previously. EasyJet was flat at 634p despite Liberum raising its price target to 800p.

Overall, commodity prices were a positive for the London market today as the likes of BP (LSE:BP.) and Rio Tinto (LSE:RIO) helped the FTSE 100 index improve by a better-than-expected 0.5%. This was in contrast to the performance of some more tech-focused indices, where the recent rise in US bond yields continues to cause a flight from high-growth stocks.

• Insider: these FTSE 100 sellers just trousered over £250m
• Shares for the future: how I’ll find great cheap shares in 2022
• 27 dividend stocks for income seekers in 2022 

The Nikkei 225 fell almost 3% in Tokyo, although upbeat earnings from Morgan Stanley (NYSE:MS) and Procter & Gamble (NYSE:PG) steadied Wall Street nerves at the start of trading today.

In the FTSE 250 index, prime minister Boris Johnson's plan to end work-from-home guidance in England from next Wednesday helped several re-opening stocks, including Cineworld (LSE:CINE) and Trainline (LSE:TRN). Marks & Spencer (LSE:MKS) shares also rose 2% to 227.3p as the retailer resumed the upward momentum seen before last week's trading update.

The biggest gain in the second tier came from WH Smith after boss Carl Cowling gave an upbeat assessment on prospects following a robust performance over the festive period.

High street outlets delivered 90% of 2019 revenues in December and the travel division got back to 94% in the month before the Omicron variant hit. Cowling welcomed the Government's recent relaxation of the testing regime for arriving airline passengers and said the company is ready to benefit from recent investment in its UK and US-based travel store network.

• Best 39 growth stocks for 2022
• Friends & Family: ii customers can give up to 5 people a free subscription to ii, for just £5 a month extra. Learn more

He said: “We are well placed for the key trading period in travel this summer and the ongoing recovery in our markets."

Shares rose 7% or 108.5p to 1,661p, which takes the retailer back to where it was in early November. It briefly touched 2,000p in March and was above 2,600p before the pandemic.

Broker Peel Hunt has a price target of 2,300p and believes the retailer will come out of the Covid-19 crisis in better shape than when it went in.

It said: “During the pandemic WH Smith has made good progress with its formats and has won plenty of new space. That will bear rich fruit when travel numbers return to normal.

“There is no change to forecasts today but a freeing up from Johnson will allow us to think that numbers are too low, certainly for outer years. Investor sentiment is likely to turn more quickly than the forecast, and we expect to see the shares do well over the next few sessions.”