easyJet (LSE:EZJ) shares have made something of a recovery in 2023. The stock is among the best performers on the FTSE 250, with much of the growth coming in the past few months, despite the relative volatility.
The price is up 47% over the past 12 months. So, if I had invested £1,000 in the airline operator, today I’d have £1,470. That’s clearly not a bad return.
Return to profit
On November 28, the low-cost carrier declared a profit for the fiscal year, crediting a robust second half.
The annual report revealed a headline pre-tax profit of £445m for the 12 months ended September 30, a marked improvement from the £178m loss in the prior year.
This result aligns with the profit range of £440m to £460m previously provided by management.
And after three years without a dividend, the board reintroduced a final dividend of 4.5p per share.
The payment totals £34m, constituting 10% of after-tax headline profit, with plans to raise it to 20% in the current financial year.
Looking forward
Of course, investors were less interested in exactly where profit fell and more interested in the forecast for 2024 and further ahead.
Broadly, the airline was upbeat on the year ahead, with the board noting that three-quarters of Britons plan to spend more on their holidays in 2024 than they did in 2023.
easyJet noted research that highlighted a majority saw travel as their most important discretionary spending moving forward.
However, that’s not to say their aren’t near-term challenges.
One of these is the impact of the Israel/Gaza conflict on winter sun destinations, Israel, Jordan, and Egypt.
Flights to Israel and Jordan are currently on hold, while Egypt isn’t seeing the demand it normally does according to reports.
We’ve also got to consider the impact of fuel prices.
The discount airline said on November 28 that it had hedged 76% of its fuel needs for the first half of 2024 and 51% for the second, at an average cost of $109.75 and $104.18 per barrel, respectively.
On a positive note, we’ve also seen jet fuel prices fall in recent weeks and improving forecasts for 2024. The direction of fuel prices is a factor that can’t be overlooked.
Valuation
easyJet shares certainly aren’t expensive. The stock trades at 11.1 times earnings and the company boasts one of the most robust balance sheets in European aviation, with a net cash position of around £40m.
Moreover, when we look at forward earnings, easyJet certainly looks like an interesting prospect. The below chart details expected earnings per share (EPS) and provides a price-to-earnings (P/E) ratio based on the current share price.
| 2024 | 2025 | 2026 | |
| EPS | 57 | 68.9 | 70.9 |
| P/E | 8.8 | 7.3 | 7.1 |
I had previously preferred IAG to easyJet and its peers, but I do think this budget airline is a good option. Given the attractive P/E, growth trajectory, and surplus cash, I may consider adding it to my portfolio.
