Easyjet is deemed 'underappreciated' in market value, according to Peel Hunt's evaluation.
Easyjet Stock Surges on Peel Hunt's Bullish Forecast
Easyjet shares rose by 2.8% on Thursday, buoyed by optimistic earnings expectations from Peel Hunt for the upcoming year. According to a notes released by the analysts, Easyjet is “significantly undervalued.”
The budget airline's sustained travel demand has been the driving force behind its growth, a momentum that shows no signs of abating following the post-pandemic spike. Easyjet's summer flying program in the UK is the largest in its history, boasting over 33 million seats available.
Last week's half-year profit decline offers limited insight into Easyjet's performance, as winter is customarily a loss-making season for the industry, and this year, Easter fell later in the calendar. However, Easyjet reported that current bookings indicate it is likely to reach a pre-tax profit target of £703 million for the year - a record high.
Easyjet's holiday division has been a significant contributor to its resilience in recent years. Last week's interim results showed a year-on-year profit increase of £13 million to £44 million for its holiday arm. Peel Hunt anticipates further growth in this sector, supported by new base openings in Southend and Newcastle.
Analysts at Peel Hunt also pointed to favorable fuel costs and a weaker US dollar, which have boosted Easyjet's outlook. The analysts also suggested that the airline could benefit from improvements in aircraft utilization, monthly average staff per aircraft, and potential fleet upgauging.
Easyjet's shares have seen a 25.8% increase over the past 12 months, contrasting the 25.3% fall experienced by its London-listed rival, Wizz Air. Peel Hunt projects approximately 60% pre-tax profit growth from FY2024 to 2028, and they remain confident in Easyjet's ability to meet its medium-term targets. The analysts reiterated their buy rating and set a target price of 900p for Easyjet's shares.
While Easyjet's confidence in meeting annual profit targets is grounded in strong bookings and cost management efforts, such as a reduction in CASK (Cost per Available Seat Kilometer) excluding fuel, broader market conditions could potentially impact its financial performance. These conditions may involve shifts in customer behavior and external economic factors.
According to an analysis by Peel Hunt, customer long-term expectations could play a role in influencing Easyjet's financial performance, potentially creating uncertainty (Peel Hunt, 2023). However, the airline has indicated confidence in meeting its targets despite larger half-year losses and strong forward bookings.
- Investors eagerly observe the technology sector as Easyjet, a leading player in the transport industry, continuously innovates its business model to minimize costs, such as reducing the Cost per Available Seat Kilometer (CASK) excluding fuel, aiming to maintain profitability amidst fluctuations in the market.
- The financial landscape of the airline industry is likely to be significantly affected by the ongoing technological advancements and investing trends, as experts like Peel Hunt predict roughly 60% pre-tax profit growth for Easyjet from FY2024 to 2028, bolstered by factors such as base expansions, fuel cost efficiency, and potential fleet upgauging.
