Shares in easyJet (LSE: EZJ) are over 6% higher today after the company released a very impressive trading statement. The key takeaway is that the budget airline’s full-year pre-tax profit is now expected to be between £675m and £700m, which is higher than previous guidance of between £620m and £660m. Clearly, this is great news for the company’s investors and shows that the business is performing relatively well at the present time.
A key reason for easyJet’s raised guidance is continuing increases in passenger numbers. The company’s load factor (proportion of seats taken on all flights) reached a record 94.4% in August, as did passenger numbers which reached 7.06m in the same month. That’s the second successive month of 7m+ passengers and shows that easyJet’s innovative changes (such as allocation of seats and a focus on business passengers) are allowing the company to tap into a wider range of customers.
Looking ahead, easyJet is expected to post double-digit earnings growth in each of the next two years and, despite its share price having risen by 333% in the last five years, it still appears to offer excellent value for money. For example, it trades on a price to earnings growth (PEG) ratio of just 1 which, for a company that has increased its bottom line at an annualised rate of almost 47% during the last five years, appears to be a bargain.
Clearly, there are other excellent opportunities within the airline and travel operator space. For example, International Consolidated Airlines Group (LSE: IAG), owner of British Airways, is expected to grow its earnings by as much as 76% in the current year, and by a further 23% next year. Despite this, it trades on a PEG ratio of just 0.2, which indicates that share price growth is on the cards.
Similarly, Thomas Cook (LSE: TCG) is due to post earnings growth of 40% next year and, as with IAG, trades on a PEG ratio of just 0.2. Meanwhile, Tui (LSE: TUI) is also making exceptional progress following its merger and is due to post a rise in its bottom line of 36% in the current year, followed by growth of 18% next year. This puts it on a PEG ratio of 0.6, which indicates that its shares could continue the 14% outperformance of the FTSE 100 that has taken place in the last month.
However, where easyJet has a major advantage over IAG, Thomas Cook and TUI is with regard to its stability. In the case of IAG, it has endured a challenging handful of years that saw it fall into loss-making territory in 2012 and, with increasing competition from the likes of easyJet for business customers, its longer term performance could suffer. Similarly, Thomas Cook has been loss-making for the last four years and, while it is expected to turn its performance around in the current year, it appears to be a less resilient business model than easyJet, which means that a discount to its peer may be justified.
Furthermore, while Tui also has strong growth prospects, major change such as has occurred with its merger can take time to have a positive impact on financial performance and also on investor sentiment. So, while all four stocks appear to be worth buying, easyJet’s stability, growth prospects, valuation and momentum make it the preferred choice at the present time.
Peter Stephens owns shares of easyJet. 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.