Why easyJet share price discount is unjustified
There are concerns about costs and currencies, but otherwise analysts are scratching their heads about this cheap airline stock. Here’s why they think it’s a buying opportunity.
29th January 2025 15:39
by Graeme Evans from interactive investor
Heavily backed easyJet (LSE:EZJ) shares today spent another trading session in the shadow of IAG as the short-haul airline continues to trade at an approximate 50% discount to pre-pandemic levels.
A negative reaction to last week’s first-quarter update means that shares are down more than 10% this year, while British Airways owner International Consolidated Airlines Group SA (LSE:IAG) is up 10% on top of 2024’s strong rebound.
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The current position for easyJet below 500p has not gone unnoticed among interactive investor customers after the airline ranked as our most bought blue-chip stock during last week.
The retail support is matched in the City after analysts at several banks reiterated Buy positions, ranging from UBS with a price target of 855p and Peel Hunt at 900p to Bank of America’s 680p.
Source: TradingView. Past performance is not a guide to future performance.
Peel Hunt said the market reaction to the update served up a “great buying opportunity”, while UBS said it was not clear why the shares were under so much pressure.
One of the triggers for the share price weakness is likely to have been easyJet’s forecast of a small decline in its second-quarter figure for revenues per available seat kilometres.
This reflects the need to stimulate demand in the company’s quietest quarter, particularly given winter capacity growth on longer leisure routes and the shift of Easter from March to April.
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The airline’s headline loss for the half year is poised to deteriorate compared to last year but should reduce on an underlying basis when adjusted for the timing of Easter.
Concerns around a recently higher oil price have also weighed on the stock, along with elevated levels of uncertainty around UK consumer confidence.
However, the airline has reported strong demand for flights over the Easter period and adds that bookings continue to build for summer. In addition to holiday favourites such as Palma, Faro and Alicante, newer destinations such as Tunisia and Cairo are proving popular.
It remains on track to achieve the City’s consensus profits forecast of about £709 million in the September financial year, as well as its own £1 billion medium-term target.
The recent results showed first-quarter losses reduced by 52% year on year after easyJet flew 7% more customers to a greater number of destinations. The holidays division continued its strong momentum with a 40% increase in profits during the period.
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UBS said last week: “We think the issue at the moment for European aviation share prices is about the cost outlook, currency depreciation and risk premia rather than demand.
“We highlight that hotel demand in Europe and the US has been buoyant, and comments from package holiday operators supportive.”
Bank of America added that a valuation of seven times its forecast 2025 earnings was below the company’s historic average of 11 times. It described this discount as “unjustified, given solid earnings prospects and strong balance sheet”.
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