The easyJet (LSE: EZJ) share price has bounced around over last five years or so and there’s little sign of that changing.
It’s just hit another patch of turbulence, dropping 8.5% in a month. The shares are still up 15% over 12 months, but down around 10% over five years.
This now looks like a FTSE 100 bargain, trading on a trailing price-to-earnings ratio of just 8.7. That’s undeniably cheap. But then, it’s looked cheap for some time.
FTSE 100 recovery play?
There’s plenty going in its favour right now, including a low oil price and the growing success of the easyJet Holidays business. I’ve been baffled by its underperformance for months. So what’s holding easyJet back?
First-half results, published on 22 May, offered a few clues. The airline posted a pre-tax loss of £394m for the six months to 31 March. That was in line with expectations, and slightly better than last year if the timing of Easter’s stripped out.
Third-quarter bookings were 80% sold, with the fourth quarter already 42% full. easyJet Holidays is expecting 25% customer growth this year.
Costs are coming down though. Capacity rose 12%, and its holidays arm posted a £44m profit, up £13m. Fuel cost per seat fell 8% year-on-year. The oil price remains low today, despite Middle East tensions. That could change, of course.
The foundations look solid. Yet the market remains cautious.
Dividends picking up
I don’t really think of easyJet as a dividend stock. The trailing yield’s a modest 2.3%, but there’s more income coming our way.
After three blank years during the pandemic, it paid 4.5p per share in 2023. Last year, that jumped almost 170% to 12.1p.
That kind of rebound won’t be repeated, sadly. The dividend’s forecast to climb to 14.14p in 2025, then 15.44p in 2026 and 17.3p in 2027. Based on today’s 525p share price, that would deliver a yield of 3.3% in two years.
That’s not going to get income hunters excited, but it’s heading in the right direction. Reinvested dividends could quietly build over time if the airline keeps growing.
Room to fly
The airline industry will never be risk-free. If fuel prices spike, that could quickly eat into earnings.Consumer confidence isn’t exactly soaring either, particularly in Europe. The summer heat’s another unknown. Repeated heatwaves could dent demand for southern getaways.
But the outlook’s upbeat. Analysts expect easyJet to report a full-year profit of £703m in 2025. And the group says it’s on track to deliver £1bn in pre-tax profits within a few years.
Forecasts are encouraging. Eighteen analysts produce a median share price target of 700p in 12 months. Now that’s a 33% gain from where we are today. Twelve out of 20 rate the stock a Strong Buy, with two more saying Buy. None say Sell.
That’s no guarantee of future returns, but the numbers suggest easyJet could reward patient investors in the long run.
With costs falling, bookings strong and dividends recovering, I think this is one FTSE 250 stock investors might consider buying. But they must be ready for more bumps along the way.
