The easyJet (LSE: EZJ) share price has soared by a third over the last six months, and it’s now swapped its temporary slot in the FTSE 250 for what it hopes will be a permanent berth in the FTSE 100.
In one respect, I’m glad to see it thrive. Last time I wrote about easyJet shares, on 26 November, I thought markets were underrating their potential. In another respect, I’m not so pleased. I didn’t have enough spare cash to buy it at the time and have missed out as a result. So it goes.
I like buying stocks when they’re out of favour but wasn’t brave enough to purchase easyJet at the height of the pandemic when airlines were reeling. Its shares are down a thumping 50% over five years. Over 12 months, they’re up 13.8%.
Now it’s back where it feels it belongs. So should I add it to my Stocks and Shares ISA portfolio before April 6?
This stock is flying
The budget airline has benefited from the ‘revenge travel’ trend, as tourists catch up on the trips missed during lockdown. They’re also willing to spend a bit on seat upgrades and on-board meals, boosting easyJet’s ancillary revenues. If inflation continues to fall and the cost-of-living crisis eases, that’s likely to continue.
easyJet turned a 2022 full-year loss of £178m into a headline profit before tax of £455m in the 12 months to 30 September 2023. A week later the Israel-Hamas conflict exploded. In February, it reported a £40m “direct impact” as it was forced to suspend flights to Israel and Jordan, while demand dipped on Egypt routes.
It posted a Q1 headline loss before tax £126m, although that was slightly better than the previous year’s £133m loss. Losses should ease, though, with summer 2024 bookings building nicely. Volumes, pricing and revenues per seat are all pointing in the right direction.
easyJet’s holiday division is also facing the right way with Q1 profit of £30m. That’s a big increase from last year’s £13m.
I’m keen to hop on board
Airlines suffer when fuel prices rise but that is not a major worry yet, as oil settles at just above $80 a barrel, despite Red Sea uncertainty.
The board restored the dividend at the end of last year, with the first payout of 4.5p per share due in early 2024. This should increase to 20% of headline profits when full-year 2024 results are published, and may rise further in future.
Markets expect a yield of 2.39% in 2024, rising to 2.92% in 2025. Financially, easyJet looks pretty solid. Year-end net cash of £41m is forecast to hit £184m this year and £192m in 2025. The group also has £4.7bn of liquidity.
The airline sector can be volatile. Like every other airline, easyJet is at the mercy of factors beyond its control, both macro and geopolitical. Despite the recent share price hop, it still looks good value trading at 8.79 times forecast 2024 earnings, and I’ll consider buying it for my ISA before the financial year is out.
