There has never been a better time to buy EasyJet plc and International Consolidated Airlns Grp SA

After a recent pullback, EasyJet plc (LON:EZJ) and International Consolidated Airlns Grp SA (LON:IAG) look like bargains.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The airline industry has had a rough time of it during the oil price boom of recent years. But as the commodities supercycle has ended, hydrocarbon prices have tumbled. And this is unequivocally good news for the airlines.

After the EU referendum on 23 June, there were many fears about how the UK economy, and the stock market, would fare. But worries about a recession and a strong negative reaction to the vote have proven unfounded so far. That’s why I think there has never been a better time to buy EasyJet (LSE:EZJ) and International Consolidated Airlines Group (LSE:IAG).

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

EasyJet

No-frills airline EasyJet operates very much along the lines of a typical low-cost airline, using airports outside of the main hubs such as Heathrow and Gatwick and no free meals on board. In part, this business model was custom-made to survive the years when gasoline prices were high, but I think this firm will continue to progress as a no-frills business, even as oil prices stay low.

Unlike the premium airlines, EasyJet did well even during the commodities boom, but it’s doing even better now that oil prices have tumbled. Turnover has been rising from £4.2bn in 2013 to £4.6bn in 2015. Likewise, earnings per share have climbed from 100p in 2013 to 138p in 2015.

What’s more, I don’t think the recent pullback in the shares is a reason for investor alarm but it has created a buying opportunity. From a high of 1,915p in 2015, the shares are now keenly priced at 1,099p. A trailing P/E ratio of just under 8, and a high and rising dividend yield of 4.1%, show how cheap the shares now are.

International Consolidated Airlines Group

Premium airline IAG, which owns major brands British Airways and Iberia, has taken a completely different path to profitability from EasyJet. During the years of high hydrocarbon prices, and despite a radical restructuring, the firm struggled to turn a profit. IAG uses hubs such as Heathrow and Gatwick, provides free meals, and has reserved seats. This means the overheads are that much higher, and when fuel costs are high, margins become wafer thin.

But reduce fuel costs, and earnings rocket. That’s why, while turnover has gone from £15.5bn in 2013 to £16.8bn in 2015, earnings per share have leapt from 5.4p in 2013 to 51.9p in 2015. That’s a far more rapid rise than EasyJet. So, not surprisingly, the share price has also taken off, going from 150p in 2012 to a high of 617p in 2015.

And as Britain’s economy continues to strengthen, I suspect travellers may start to prefer the premium airlines to the low cost carriers, further boosting IAG’s profitability.

But the crash following the EU vote has taken the shares down to just 390p. That leaves the transport company on a trailing P/E ratio of 8 and a dividend yield of 1.8%. With oil prices set to remain low for the long-term, that looks enticingly cheap.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 4 cheap shares for a market recovery

After months of sitting on my hands, I've finally taken the plunge by buying four cheap shares. Of course, their…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Here’s why I’m buying more shares in one of my best stocks to buy!

This Fool explains why he is planning on adding further shares of one of his holdings to boost his portfolio.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Just 6% of investment trusts make positive return in H1! What should I do?

The returns from investment trusts have so far disappointed this year. Here's why I plan to continue splashing the cash…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Could this FTSE 100 stock be a bargain to buy and hold?

This Fool believes there are some excellent bargains to be had on the FTSE 100 and details one he is…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Are these the best income shares to buy in 2022?

Andrew Woods wonders if he should add these two companies to his portfolio to create a consistent income stream.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

At 41p, are Lloyds shares now too cheap to miss?

As interest rates rise, Andrew Woods asks if now is the time to load up on Lloyds shares.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 dirt-cheap UK shares to buy right now!

Stock market volatility remains very high. This presents excellent opportunities for investors to buy mega-cheap UK shares like these two…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Should I buy soaring Abrdn stock? Or am I too late?

Abrdn stock jumped 8% in Wednesday morning trading. The share price has tanked this year, so maybe its fortunes are…

Read more »