The easyJet (LSE:EZJ) share price has demonstrated considerable volatility in recent months. The stock plunged 15% in October before recovering in November.
In fact, it’s a pretty volatile stock in general, with a 24-beta rating — a measure of volatility — of 1.68. That’s greater than almost all of its peers including Ryanair and IAG.
Performance
In October, easyJet reported a “record summer” and forecast a pre-tax profit of £650m-£670m for Q4.
However, the full-year profit outlook was lower than expected, ranging between £440m-£460m, falling short of the consensus forecast of £469m.
Factors contributing to this disparity include summer strike actions and increased competition.
It’s worth noting that the discrepancy may also be linked to the impact of rising global fuel prices, spurred by the Hamas attack on 7 October. However, this seems to have affected the share price rather than Q4 performance.
The share price has recovered in November. In a sign of an improving industry, one of easyJet’s major competitors, Ryanair, forecast a record annual profit, citing a 24% increase in airfares during the warmer months.
Tuesday’s announcement
On Tuesday (28 November) easyJet will confirm exactly where annual profit before tax landed in the £440-£460m range provided last month.
This will play a crucial role in establishing the returns for shareholders. The budget airline’s board has committed to distributing 10% of profits after tax to shareholders.
However, analysts and investors will likely be paying closer attention to the airline’s forecasts for 2024 rather than the refined profit figures for 2023.
In October, the company suggested its Q1 for fiscal year 2024 would be up 15% year on year. However, it’s likely that this will soften given the impact of rising fuel prices — stemming from geopolitical issues in the Middle East — since the outbreak of war in Palestine.
Equally important is the war’s impact on demand for winter sun destinations including Egypt and Jordan. I can attest to this myself as our winter break to Aqaba has been postponed.
Looking further forward, easyJet’s hedging strategy will likely prove particularly important given rising fuel prices. The firm has hedged nearly 75% of its fuel needs for H1 of FY24 secured at $866, and 46% hedged for the second half at $822.
Value for money?
easyJet certainly isn’t expensive. However, airlines currently aren’t trading at high multiples. IAG trades at 4.3 forwards times earnings, and Wizz Air trades at 6.7 forward earnings. By these standards, easyJet looks more expensive than its peers.
The below table details the earnings per share (EPS) forecast for the coming three years and the resultant price-to-earnings (P/E) ratios. Investors are often willing to pay a premium for growth. And the data below highlights that EPS is expected to improve considerably year on year.
| 2023 | 2024 | 2025 | |
| EPS (p) | 46.7 | 56.3 | 66.3 |
| P/E | 8.75 | 7.25 | 6.16 |
It’s also worth noting that easyJet has one of the strongest balance sheets in European aviation. It has a net cash position of approximately £40m.
In FY23, easyJet has prioritised debt reduction, including repaying a €500m bond in February. It also refinanced the £1.4bn UKEF facility, resulting in the repayment of an additional $950m of gross debt.
I’m certainly tempted by easyJet and its 0.83 PEG ratio — an earnings metric adjusted for growth. But all eyes are on Tuesday. Nonetheless, to date, my preference has been for IAG.
