The easyJet (LSE: EZJ) share price has endured a turbulent spell lately after a recent announcement by the firm. The part that stole the headlines, as my colleague G A Chester explained, was regarding easyJet’s rights issue. It stated that the firm aimed to raise £1.2bn with an intention to strengthen its long-term position in the European sector. This led to a double-digit trimming of the stock’s price. Yet last week took the price some way to redemption with over a 7% rise. So, will this continue?
Let’s begin by taking a closer look at the announcement from easyJet earlier this month. It contained several messages, but the one that caused the most talk among shareholders was the rights issue. Such rights issues often happen during crises with IAG and Rolls-Royce also being pandemic-linked examples. The large sell-off of easyJet shares reflects investors’ dampened views.
To add to the cash call, it also provided another shock to investors when announcing that it had received a takeover offer from an unnamed rival (widely reported to be Wizz Air). This may be one reason for the call to investors, as a cash injection would protect the firm from receiving lowball bids. The uncertainty created from this message is clearly not good. This puts me off from adding easyJet to my portfolio for the moment.
Yet news of a takeover also tempts me to buy some shares. I would expect that any form of takeover to have a positive impact on the easyJet share price. With the stock currently trading for around 630p (a fraction of pre-pandemic levels), this could be a great addition to my portfolio at the current price.
An announcement by ministers that the latest string of measures to phase out travel restrictions was to come into action will no doubt further positively impact easyJet. After it was stated that the traffic light system was to be replaced, along with PCR tests being scrapped for double-jabbed travellers, it was clear we could expect to see a rise in the number of people jetting away on holiday in the near future. A rise in passenger numbers would put the firm partly back on track. In a winter period when many expected reduced travel, this could instead open the door for a rise in passenger numbers.
Will the rise continue?
The cash injection could be vital for easyJet’s future. This will go a long way to shoring up its balance sheet. As such, I think we could expect to see a rise in the easyJet share price for the remainder of this year. A takeover would also provide a boost. The risk for me is if a takeover doesn’t materialise. The firm has found itself being outpriced by competitor Wizz Air, and recently has fallen behind rival Ryanair. I think the share price may rise short term. Yet I think the road to recovery for easyJet is a difficult one to navigate. As such, I won’t be buying any shares for now.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.