The easyJet (LSE:EZJ) share price has surged over the past month, having fallen 15% in October. So have I missed my chance to buy? Let’s take a closer look.
Swinging back to profit
On 28 November, the budget airline announced it has swung back to profit for the year, citing a robust second-half financial performance.
The annual results revealed a headline pre-tax profit of £445m for the 12 months ended 30 September, a notable improvement on the £178m loss reported the previous year.
This was towards the lower end of the management’s projected profit range of £440m-£460m.
Moreover, easyJet reinstated a final dividend of 4.5p per share after three years without one. The dividend equates to £34m, or 10% of after-tax headline profit.
The company also aims to raise the dividend to 20% of profits in the current financial year.
Problems
However, investors were perhaps looking more closely at the company’s forecast for the year ahead. On 28 November, easyJet reported a positive start to the new financial year, citing robust profit growth in October and early second-quarter bookings ahead of last year.
However, the airline cautioned that ongoing conflicts in the Middle East, particularly affecting flights to Israel, Jordan, and Egypt (representing 4% of capacity), would impact results for the current year.
Flights to Israel and Jordan are currently on hold due to the Gaza conflict. The longer the war goes on, the bigger the damage will be to easyJet’s business.
As a result, the airline’s Q1 loss isn’t expected to improve year on year. But the company remains optimistic about the overall outlook for the year, citing strong summer 2024 bookings and supply constraints in Europe.
Earnings forecast
Currently, easyJet is trading at 10.6 times earnings. That’s lower than Ryanair at 11.4 times, but more than double IAG at 4.3.
The reasoning behind these variations is growth. IAG is expected to go backwards next year due to higher fuel costs, although I’m still hoping it’ll be able to turn it around.
Meanwhile, Ryanair and easyJet have strong growth forecasts.
In the table below, I’ve highlighted earnings per share (EPS) forecasts for 2024 and 2025, and the associated price-to-earnings (P/E).
| 2023 | 2024 | 2025 | |
| EPS | 45.4 | 57 | 66.9 |
| P/E | 10.6 | 8.4 | 7.1 |
Risk worth taking?
easyJet certainly isn’t a bad option. Demand for travel has proven robust despite a challenging economic backdrop, and it’s expected to remain this way.
From a financial perspective, easyJet boasts one of the most robust balance sheets in European aviation, with a net cash position of around £40m.
This has been made possible by a debt reduction programme. It included the repayment of a €500m bond in February and the refinancing of the £1.4bn UK Export Finance (UKEF) facility.
I’m certainly considering an investment in easyJet, especially noting its price/earnings-to-growth ratio of 0.85. It doesn’t look like I’d have missed out with a potential undervaluation of 15%.
For now, my only investment in the sector is IAG. But it’s growth forecast, over the next couple of years, isn’t strong.
