easyJet back on the FTSE 100! Time to consider buying?

The FTSE 100 will welcome easyJet back after a few excellent months for the airline. It it time to consider it while it’s still a FTSE 250 stock?

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Image source: easyJet plc

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Is it a good moment to look at easyJet (LSE: EZJ) shares? Maybe. The airline is set for the FTSE 100, for one thing. 

That might boost the shares as institutional investors and funds jump in once it takes its place on the Footsie. 

The 548p share price looks cheap for now – it’s still a long way from pre-pandemic highs of over 1,500p in 2020 and over 1,900p in 2015. 

Thumbs up

And analysts are giving the thumbs up. The average price target of 670p means a potential 22% rise and the highest target of 879p means a 60% jump.

With good momentum – the shares are up 52% since October – even a £10 (1,000p) share price doesn’t look out of reach. 

Whether it gets there or not comes down to (in my view) one thing: the public’s appetite for travel. 

The ‘revenge travel’ trend has boosted passenger numbers already. This is where people get their own back on Covid-19 by flying abroad. 

Last summer was a bonanza for bookings and early signs suggest the coming summer could break all records.

Even the Middle East powder keg hasn’t deterred jetsetters. Bookings to Israel and Jordan dropped in the first quarter but total passenger numbers rose 14% year on year.

February’s data for unemployment (which was expected to be 4% but was actually 3.8%) and inflation (expected 4.2%, actual 4%) both support more free cash for holidays too.

With good news from all corners, I’d expect airline stocks to be taking off. But are they?

Mixed quarter

Well, it’s a mixed bag. Over six months, easyJet shares are up 27%, Jet2 shares are up 36%, Wizz Air is at break-even and IAG shares are down 7%.

Airlines haven’t been slam dunk buys. Not yet, at least.

And reading easyJet’s latest quarterly earnings, one thing stands out to me. The company is still losing money. The headline loss before tax was £126m compared to £133m in same quarter last year. 

Although the firm will turn a profit for the year – thanks to a busy summer – a lack of year-round profitability isn’t ideal.

High jet fuel costs are eating into wafer-thin margins, which might evaporate with any further increase in oil prices. 

On a brighter note, net debt fell from €1.1bn to €0.5bn in an industry plagued with indebtedness since Covid. 

The best?

From my perspective, easyJet looks like the best of the airlines. 

Low debt, a rising share price and one of the better reputations across the industry for customer service are all appealing. FTSE 100 status won’t hurt either.

With a fair wind, even a £10 share price doesn’t seem out of reach. 

But Covid and the Ukraine conflict both underlined the vulnerability of the industry. Airlines need a world where things are going well to make money. 

In summary, I believe easyJet is the best airline stock going and investors should consider buying if they want exposure to the sector.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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