I’ve long believed that buying shares in easyJet (LSE: EZJ) is a great idea given the company’s dominant role in the fast-expanding budget air travel segment. My optimism went up a notch or several, following the release of splendid trading numbers from industry rival Ryanair last week. I reckon the FTSE 100 flyer could also give its investors a lot to shout about with the release of first-quarter financials on Tuesday, 21 January.
In that recent release Ryanair said that it had enjoyed a “stronger than expected Christmas and New Year travel period,” with forward bookings up 1% for between January and April. And as a consequence the Irish flyer upgraded its after-tax profit estimate of €800m to €900m for the fiscal year ending March quite considerably, to between €950m and €1.05bn.
It’s clear that the low-cost carriers are benefitting from the demise of several of their industry rivals in recent times, the most recent being Thomas Cook towards the back end of last year. And what’s more, with the competition over who can offer the lowest fares raging on, and more recently oil prices rising again on the opening of a new rift between US and Iran, it’s possible that the number of operators could become a lot thinner over the short-to-medium term.
City analysts certainly believe that trading conditions are getting better and better for easyJet, too. They expect the orange-liveried flyer to record an 8% annual earnings rise for the fiscal period to September 2020, and that an even-better 15% profits increase will happen in financial 2021.
The number crunchers steadily upgraded their forecasts during the course of 2019 and it’s possible that more improvements will transpire once those first-quarter trading numbers come out later this month. Last time out in November easyJet said that capacity increases had helped revenues jump 8.3% in the last fiscal year, to €6.4bn, and that forward bookings for the first half of this period were “reassuring” and “slightly ahead of last year.”
The airline is clearly a solid bet for those seeking strong earnings growth in the 2020s, in my opinion, and a forward price-to-earnings (P/E) ratio of 15.5 times makes it terrific value given current broker estimates, too.
But easyJet’s appeal doesn’t just end here as, despite last year’s huge dividend cut, I believe it’s a great pick for income chasers, too. Fiscal 2019’s reduced payout of 43.9p per share is expected to rise immediately to 48p in the current year before detonating to 55.1p next year. These projections create bulky yields of 3.2% and 3.7% respectively, and the business looks in good shape to meet these estimates too, with projected rewards covered 2 times by anticipated earnings and debt levels dropping.
EasyJet’s share price has leapt 51% in the last six months, and I fully expect it to continue rising as we move through 2020. I’d happily by it ahead of those upcoming financials this month and hold it for years.
Royston Wild 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.