Despite the carnage seen around many stocks, the easyJet (LSE: EZJ) share price has performed well over the past year.
The underlying airline and holiday business has been recovering at pace. And on 12 October 2023, the company issued an upbeat full-year trading update with a long-term plan for further growth.
Meanwhile, it’s hard to make a case for the valuation being excessive – it isn’t. As I write, the share price is near 421p. And that puts the forward-looking earnings multiple at just over seven for the current trading year to September 2024.
Trading well
My assumptions about the inherent weakness of airline businesses are being challenged by easyJet right now. I thought the company would be loaded with debt after the pandemic and all the recent general cost pressures. But after a peak in borrowings shown in the 2020 accounts, the debts have been falling fast.
And for the source of that happy outcome, it’s best to focus on the impressive recent record for cash generation. Whichever way I look at it, easyJet appears to be in rude health.
But flirting with airline stocks always means carrying an extra layer of risks. Such businesses are vulnerable to general economic shocks. Fuel price changes, recessions, wars, pestilence and plague can all have a dramatic effect on the sometimes-fragile finances of airlines.
Even billionaire master-investor Warren Buffett was caught out holding sour airline stocks when the pandemic hit. And he decided to dump the lot of them.
However, the easyJet business is flying right now, if we pardon the pun. And chief executive Johan Lundgren added some colour to the latest figures.
The business saw a record summer with strong demand for easyJet’s flights and holidays in 2023, Lundgren said. And in today’s update, the company set out an “ambitious” roadmap to serve more customers and deliver attractive shareholder returns.
A plan for growth
The plan will be underpinned by an ongoing focus on costs and operational excellence. And the directors’ medium-term targets “provide the building blocks to deliver a profit before tax of more than £1bn”.
To put that target in perspective, the company posted a loss in the first half of the year to September 2023. But the second half was profitable. And easyJet estimates the full-year profit before tax will likely come in between £440m and £460m.
So, the targets look ambitious, And, if achieved, could help to propel the share price higher. Although, as with all stocks and businesses, positive outcomes are never nailed-on certainties.
Lundgren said the plan involves aiming to reduce winter losses, upgrade the company’s fleet of aircraft, and grow the easyJet holidays part of the business.
The company announced it has agreed a proposal with Airbus for an order of an additional 157 aircraft and a further 100 purchase rights. Lundgren said the move will enable easyJet’s fleet modernisation and growth to continue beyond 2028 “while providing substantial benefits including cost efficiencies and sustainability improvements”.
And to underline the company’s progress, the directors intend to reinstate shareholder dividends with the full-year results for 2023. That is what I’d call good progress!
