Should You Buy TUI Travel PLC, Thomas Cook Group plc, easyJet plc Or International Consolidated Airlines Grp?

TUI Travel PLC (LON:TT), Thomas Cook Group plc (LON:TCG), easyJet plc (LON:EZJ) or International Consolidated Airlines Grp (LON:IAG): which has the best prospects?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

easyjet

It’s been a disappointing year for the travel and leisure sector, with shares in a number of the sector’s big names falling throughout the course of the year.

However, having released an upbeat set of results today and seeing its share price fall by 7% since the turn of the year, is now the right time to buy TUI Travel (LSE: TT), or are sector peers such as Thomas Cook (LSE: TCG), easyJet (LSE: EZJ) and IAG (LSE: IAG) better companies to buy a slice of?

Strong Pre-Merger Update

Ahead of its merger with major German shareholder, (also called) TUI, TUI Travel has posted a strong set of results that show the company is heading in the right direction. For example, the company expects operating profit to increase by at least 9% in the current financial year and was able to sell most of its summer holiday deals across Europe. Indeed, the only blot on the company’s copybook is a £27 million provision against the loans made to its joint venture in Russia and Ukraine.

Growth Potential

As mentioned, TUI Travel is due to post strong earnings growth in the current year and, despite this, shares in the company are still fairly cheap. For instance, they trade on a price to earnings (P/E) ratio of just 12.4, which equates to a price to earnings growth (PEG) ratio of 1.3. That’s impressive and shows that TUI Travel offers upbeat growth prospects at a reasonable price.

Sector Peers

However, after the large fall in share prices already mentioned, the wider travel and leisure sector also offers great value for money right now. For example, Thomas Cook trades on a P/E ratio of just 12 and yet is forecast to increase earnings by 56% next year. This puts it on a PEG ratio of just 0.1, although it should be pointed out that, unlike TUI Travel, Thomas Cook has been loss-making in each of the last three years.

Indeed, IAG has also experienced a turbulent period in recent years. The company is due to return to profitability in the current year, though, and is expected to follow this up with earnings growth of 48% next year. This puts it on a PEG ratio of just 0.2, which is hugely appealing.

Meanwhile, easyJet seems to offer the best of both worlds. It has been hugely profitable in each of the last five years and, furthermore, is forecast to increase net profit by 12% in the current year and by 11% next year. Trading on a P/E ratio of 12.3, this equates to a PEG ratio of 1.1 – slightly lower (and, therefore, more attractive) than that of TUI Travel.

So, while there is undoubtedly huge potential and great value in all four companies, easyJet seems to offer the most potent mix of earnings reliability and growth at a reasonable price. As a result of this, and the uncertainty that inevitably comes with a merger, it looks to be a better buy than TUI Travel.

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »