Rolls-Royce (LSE: RR) shares have grown wings lately, flying an eye-watering 98% in 2024 and an astonishing 350% over three years.
At the same time, easyJet (LSE: EZJ) has struggled to get off the runway. The budget airline’s share price has slipped 2% over the last 12 months and 23% over three years. Over five years it’s down 60%.
I’m baffled by struggling easyJet shares
That dismal showing surprises me for two reasons. First, both FTSE 100 companies have been subject to the same sectoral forces.
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As an aircraft engine maker, Rolls-Royce has benefited from the explosion in pent-up demand for flights as Covid lockdowns pandemic receded into memory. As did British Airways owner IAG, the only FTSE 100 stock to outpace Rolls last year. So can easyJet’s shares soar while Rolls-Royce steadily level off?
The Rolls-Royce recovery was driven by the resurgence in long-haul travel, with increased engine flying hours translating into higher revenues for its civil aerospace division. Investors have also been wowed by its successful restructuring efforts under transformative CEO Tufan Erginbilgiç.
Better still, its defence and power systems segments have also provided steady growth, offering diversification and resilience.
Yet the engineer’s meteoric rise has now priced in a lot of good news and the shares look pricey trading at 41 times trailing earnings. The group has worked down its debt pile but still has to invest heavily in new technologies like sustainable aviation fuel and hybrid-electric engines.
We’re also waiting to see whether new ventures such as its mini-nuclear reactors will cook up a new line of revenue. While Rolls-Royce shares risk flying too close to the sun, easyJet has gone a little cold.
It’s struggled with rising fuel costs, operational disruptions, and stiff competition in the European short-haul market. Passenger demand has been rising steadily and its fast-growing easyJet holidays division is doing well, but as inflation returns customers may feel the squeeze.
This looks like a top FTSE 100 value stock
The shares have slumped 15% in the last month, primarily due to higher inflation expectations and the hullabaloo over UK gilt yields.
With the easyJet share price now trading at just 8.1 times earnings, it surely offers much better value than Rolls-Royce.
easyJet has a solid balance sheet, decent brand and has built a strong position at key European airports. I think its shares could take off again when the economy does. But when exactly will that be?
I hold Rolls-Royce shares and won’t buy more. It’s no longer a rocket ship, more like an ocean liner. But I don’t hold easyJet. Following the recent dip, I’m tempted to buy.
The 20 analysts offering one-year share price forecasts have produced a median target of just over 718p. If correct, that’s an increase of almost 45% from today. That’s a stellar potential return. I think it’s a little of the optimistic side.
2025 looks like a bumpy year for the UK and Europe. I think the easyJet rebound will take some time, but today, the share potentially offers a brilliant entry point for patient long-term investors. Any signs of a turnaround could drive a significant re-rating. One day, easyJet could do a Rolls-Royce. Or IAG for that matter. I’ll buy the moment I’m feeling brave enough.
