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Why I think the easyJet (LON:EZJ) share price will climb by Christmas

An easyJet plane takes off
Image source: London Luton Airport

We have to wait until 30 November for full-year results, but do I detect signs that the easyJet (LSE: EZJ) share price is starting to creep up in anticipation? It’s not much, but at the time of writing today, the shares have ticked up nearly 4% since market close on 20 October. And they’re up 32% over the past 12 months.

That does hide a mini-boom and bust in 2021, mind. The price climbed as high as 1,095p in May before crashing back to today’s 612p. I do think the summer’s peak was overblown and the shares were overvalued. But right now, I can’t help feeling the subsequent slump is also overdone and the shares are now underpriced.

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So where do I think the EZJ share price will end the year, and what might drive it? Well, first up, I want to stress that I am not trying to make any actual predictions here. No, it’s all just a bit of (hopefully informed) guesswork. And short-term price movements really don’t mean much anyway.

700p by Christmas?

Putting a bullish finger in the air, I could see easyJet shares reaching around 700p by the festive season. That’s about 14% above the current price. What makes me think that? First of all, the short-haul sector should be the first part of the aviation industry to recover from its pandemic drubbing.

We did get a bit of disappointing news on that front this week, as Heathrow Airport now suggests we might not see a full recovery in air traffic until 2026. But I see that  bad news as more for the big long-haul operators like International Consolidated Airlines.

easyJet share price slump

The easyJet share price slump was partly down to the September rights issue, and the resulting dilution. But it does put liquidity fear on the back burner, and gives the airline a bit of breathing space. The company raised £1.2bn from the issue, and also has a new $400m revolving credit facility to cover the next four years. I think that should be enough to keep easyJet going until it gets back to profit.

I’m also buoyed by fourth-quarter figures. In an update ahead of results, easyJet told us it has “sharply” improved its year-on-year headline loss. It now expects a full-year headline figure of between £1,135m and £1,175m. The previous consensus was at the top of that range.

Capacity improving

In Q4, the fleet flew at 58% of its 2019 capacity. There’s still some way to go, but that’s significantly better than IAG’s expectations. At interim time, the British Airways owner said it only expects to achieve 45% of 2019 capacity in the September quarter.

Where does this all leave me? Well, I see big risk in the aviation business even in the good times, so for that reason alone I won’t buy airline company shares. As for easyJet specifically, I really do think we could be in for an upward spell over the remainder of 2021. But I still see the stock as horribly risky in the medium term. So, I’m cautiously bullish about the EZJ share price, but I’m staying out.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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