The ‘Sage of Omaha’ has sold all his shares in major airlines, as international air traffic collapses due to Covid-19. Yet could Buffett’s move be a sign these bargain FTSE 100 stocks have finally hit rock bottom?

The billionaire investor offloaded his stake in four major US airlines, which he reckons need to borrow more than $10bn each to survive. UK-listed airlines such as British Airways owner International Consolidated Airlines Group, easyJet and Ryanair Holdings face the same headwind.

Bargain FTSE 100 shares for a reason

IAG recently posted a Q1 loss of €535m, down from a €135m profit last year. It has announced plans to cut 12,000 jobs, almost a third of its workforce, predicting the recovery in traffic could take several years.

Ryanair’s traffic fell 99.6% in April. It has announced 3,000 job losses and predicts a €100m first quarter loss, with more to follow over the peak summer period. Buffett is right to be fearful.

As Ryanair chief Michael O’Leary has bemoaned, the UK government isn’t offering the same level of support as Europe. Vueling, Iberia, Lufthansa, Air France and KLM could encounter a much softer landing, with a potential €31bn in total state aid. This could allow them to run at a loss when flying resumes, hitting UK-based competitors.

Would you defy Buffett?

Ryanair reckons it will take at least two years for demand to recover. Others don’t share its optimism. Airbus chief executive Guillaume Faury has warned it may be “three to five years” before passengers are willing to fly as before.

Management at easyJet has cash and loans totalling £3bn. But this is only enough to keep it going for nine months. Sir Stelios, who still holds a 36% stake in the company, angrily claims the board is too optimistic about the pace of recovery. He said: “There is no way the demand for passenger flying in 2021 will be the same as 2019.” 

Ryanair had €4bn in cash at the start of the pandemic, but investors don’t know how quickly it’s burning through this. Morgan Stanley has given Ryanair 12 months. Could Buffett be right?

Here’s a note of optimism. IAG has a healthy €9.5bn of liquidity, having benefited from previous cost cutting measures, and boss Willie Walsh reckons it can survive without a state bailout. A ‘lean and mean’ IAG could come out of the crisis in a strong competitive position, and looks tempting at today’s bargain price, even without the dividend.

I’d avoid easyJet and Ryanair, but there could be a case for buying IAG right now. Provided you plan to hold for at least five years, and preferably far longer. It may be time to get greedy when Buffett is fearful.

The post Warren Buffett may have signalled the perfect time to buy these bargain FTSE 100 stocks appeared first on The Motley Fool UK.

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Harvey Jones 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.

The share prices of EasyJet (LSE: EZJ), International Consolidated Airlines Group (LSE: IAG), and Ryanair Holdings (LSE: RYA) have all been clattered by the crisis, as air traffic comes to a standstill. If you find this opportunity irresistible, you should heed Warren Buffett first.

The travel industry was having a tough time even before Covid-19, with Air Berlin, Alitalia, FLYBMI, Monarch and WOW collapsing, while Flybe may be taken over by the UK government.

Stock market crash agony

This morning, easyJet bowed to the inevitable, grounding its entire fleet, and furloughing its cabin crew for two months. This will significantly reduce its costs, while management also confirmed that it has no debt refinancing due until 2022.

The easyJet share price is down more than 6% this morning, and has now lost almost two-thirds of its value since mid-January, collapsing to 556p at time of writing.

The IAG share price has taken similar punishment, falling almost two-thirds to 200p during the stock market crash, while the Ryanair share price has roughly halved to €8.98. These days that counts as a good result.

What would Warren Buffett say?

Nobody can say with any certainty when these companies can hit the runway again, and they won’t generate revenues until they do. Presumably others will follow easyJet’s lead, which should at least give management an idea of forward costs.

Investors don’t know those costs, which means they are flying blind. Nobody knows how long the lockdown will last, or how long airlines can survive on their existing liquidity. Nor do we know how quickly the travel sector will recover after the crisis. There is clearly massive pent-up demand, but many customers will have more pressing financial priorities.

This is a bad place to start investing from. As Warren Buffett has pointed: “Risk comes from not knowing what you’re doing.”

I would say that applies to the airline sector today.

Buffett also said: “The important thing is to know what you know and know what you don’t know.”

Here’s something I do know about buying easyJet, IAG, or Ryanair shares today: it’s a wild, desperate punt, and I don’t want to take that sort of risk right now.

Don’t bank on the bailout

Judging by the noises surrounding Flybe, the government may step in to bail them out. We don’t know on what terms, though, or how this will affect their recovery. 

Analysts at Citi have calculated that only Ryanair and Wizz do not need imminent capital. The other airlines do, and may face punitive terms to secure emergency funds. Investors could pay the price with diluted equity and restricted dividends. Royal Bank of Scotland hasn’t exactly flown under part-state ownership.

There is one thing I do know right now. I’m looking for opportunities elsewhere.

The post EasyJet, IAG, and Ryanair are dirt cheap. What would Warren Buffett do? appeared first on The Motley Fool UK.

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• Up 55% and a P/E of 6.6, is this FTSE 100 share too cheap to miss?

Harvey Jones 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.

If nothing else, recent stock market turmoil proves that markets are not rational.

The valuation of a company is meant to be a reflection of future dividends, discounted by a certain interest rate to give a net current value. If stock markets were rational, there would only be two possible explanations for a sharp rise or fall in valuations: either something important has occurred that will significantly change future dividends, or there has been a revision of expected long-run interest rates.

In my view, while the economic impact of the new coronavirus will be much greater than is commonly supposed, there should be no material impact on dividends paid out in future years. I would argue that the only rational justification for a sharp fall in share prices caused by the coronavirus is fear that the virus may cause the company to go bust.

Drill down

Ryanair’s total assets are worth 1.6 times liabilities, and for easyJet the ratio is marginally lower. For TUI, it is around 1.33.

In all three cases, current assets are worth less than current liabilities, which may make you feel concerned, but that is typical of the sector they operate in.

I suspect that there will indeed be corporate casualties caused by the coronavirus in the airline and holiday business. I think it is unlikely that eastJet or Ryanair will be among them. I expect future revenues and profits at the two companies will recover.

Looking at TUI, it is tempting to draw some kind of inference from the collapse of Thomas Cook, but while both companies faced similar headwinds, Thomas Cook had an extra challenge — large debts incurred to fund its purchase of My Travel.

If you felt the three companies were fairly valued before news of the virus hit, then, right now, they would all appear to be bargains.

The stronger case

There is another aspect not yet appreciated by the markets. If the coronavirus continues to spread and leads to some corporate collapses in the airline and holiday business, then those companies that survive should benefit, as they will be able to expand by filling the void created by bankrupt businesses. The rational thing, then, would be for the markets to push upwards on shares in airlines and travel companies unlikely to go bust.

Irrationality

Is now a good time to buy shares in easyJet, Ryanair, and TUI? If the markets suddenly went all rational, yes it would be. The economist John Maynard Keynes once said: “Markets can remain irrational longer than you can remain solvent.” I suspect that the markets will irrationally sell for longer yet, and I think that shares in these companies have further to fall before they eventually recover.

The post Is now a good time to buy shares in easyJet, Ryanair, and TUI? appeared first on The Motley Fool UK.

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Michael Baxter 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.

The MAX factor

That’s a surprisingly upbeat market response, given today’s release showed net profit unchanged at €1.15bn, and narrowed down its full-year profit guidance as passenger growth will be hit by delays to its new Boeing 737 MAX planes.

The aircraft may not land until March at the earliest, while “the risk of further delay is rising.” Ryanair expects to receive only 20 MAX-200s, down from 58 previously, which will reduce full-year 2021 guest numbers from 162m to 157m. It still claims these could be “gamechanger” aircraft, adding 4% more seats, while burning 16% less fuel, but investors will have to be patient here.

Ryanair also narrowed its guidance for full-year profit after tax to €800m-€900m, down from €750m-€950m.

Cautious outlook

The FTSE 100 listed group said its outlook for the remainder of the year “remains cautious,” as it tries to avoid the “unreliable optimism of some competitors.” Full-year traffic should grow 8% to 153m, with a slightly better fare environment than last winter, but remains sensitive to a no-deal Brexit.

Ryanair earns a growing chunk of its income from ‘ancillary revenues’ such as reserved seating, priority boarding, food, and car hire, and these are expected to outpace traffic growth, supporting full-year revenue per guest growth of 2-3%.

I’m slightly surprised by how positive investors are today, given Ryanair’s stock has dropped by a third over the last couple of years. But it still isn’t cheap, trading at 16.1 times earnings.

Travel is a tough sector, just look at Thomas Cook, while Brexit, a pilot’s strike, overcapacity, and waning pricing power have caused headwinds.

Ryanair posted a 1% increase in revenue per guest, as higher ancillary revenues offset lower fares, while opening five new bases in Bordeaux, Marseille, Toulouse, Southend and Berlin. It has also returned €250m to shareholders under its €700m 2011 buyback programme, and may repurchase more shares if they get hit by a “hard Brexit scenario.” Net debt stands at just €460m.

Will the travel climate change?

I don’t totally share the market’s enthusiasm for Ryanair today, given the challenges, and the fact that key issues, such as fuel prices and terror attacks, are out of its hands. It will be interesting to see if the climate change campaign knocks demand for short-haul flights and city breaks, although we haven’t seen much sign so far.

Here at least, Ryanair is positioning itself as the good guy, claiming it will cut carbon emissions by 10% and noise emissions by 40% over the next decade, because it has “the youngest fleet, the highest load factors, and newest most fuel-efficient engines.”

Its earnings forecast to leap 32% in 2021, so maybe that’s when stock holders will start to see a return on their investment. Be warned, you get precious little in dividends while you wait.

The post The Ryanair share price is soaring today! Here’s what I’d do about it now appeared first on The Motley Fool UK.

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Harvey Jones 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.

Flying low

Thomas Cook isn’t the only travel business struggling right now – London-listed airline stocks also face plenty of turbulence. British Airways owner International Airlines Consolidated Group (LSE: IAG) has seen its share price plunge 30% in the last year. Budget carrier easyJet (LSE: EZJ) is down 25%, and Ryanair Holdings (LSE: RYA) more than 20%.

Now I’m not suggesting any of them will go bust, but this is clearly an industry facing plenty of headwinds. Thomas Cook was destroyed by a variety of issues, including the weak pound, Brexit uncertainty, and last year’s long hot summer, all of which pose a challenge to airlines as well.

However, the budget carriers in particular are benefiting from one factor that hit Thomas Cook – the rise of DIY holidays and City breaks.

Thomas Cook had problems of its own. In May, it posted a £1.5bn loss, of which £1.1bn was due to its failed 2007 merger with MyTravel, known for brands Airtours and Going Places. Debt remained a fatal problem, with the group owing £1.7bn at the death.

Brighter skies

IAG has been hit by weaker demand and rising fuel costs, while BA strike action also flags up a company in trouble. The group, which recently posted a 60% drop in Q1 adjusted operating profit to €135m, now trades at just 4.43 times forward earnings.

As of 30 June, IAG held cash of €8bn, up from €1.76bn on 31 December 31, while net debt to EBITDA decreased 0.3 to 0.9 times. Its earnings are forecast to fall 7% this year, but rise next. With a forecast yield of 6.9%, covered 3.5 times, today’s share price actually looks tempting, despite recent events.

Low-cost carriers

At 31 March, easyJet’s net debt stood at £201m. That’s down from a net cash position of £665m in 2018, although the adoption of IFRS16 accounting standards played a part in that. Debt doesn’t seem a major concern for a business with a market-cap of £4.38bn.

Earnings are expected to fall 9% this year but it’s nowhere near as cheap as IAG, trading at 12.4 times forecast earnings. It’s been hit by overcapacity, like many in the travel industry, but that issue may ease after the collapse of Thomas Cook. The forecast yield is 4%, covered twice.

Ryanair’s Q1 profits dropped 21% to €243m, due to “lower fares, higher fuel and staff costs,” despite 11% traffic growth to 42m. Its net debt was flat at €419m, despite a €700m share buyback, Michael O’Leary’s €99m bonus, and the impact of IFRS16. This shouldn’t trouble a business worth €11.2bn. Earnings are forecast to drop 7% this year, but jump 31% next. However, investors can expect a bumpy ride with Ryanair, without the cushion of a dividend.

If the collapse of Thomas Cook does ease overcapacity concerns, today’s negative sentiment could be a buying opportunity. IAG looks a particular bargain, but the industry could face further struggles if the global economy slows.

The post Could Thomas Cook’s collapse be good news for these 3 airline stocks? appeared first on The Motley Fool UK.

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Harvey Jones 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.

Taking the Michael

This was in line with earlier guidance with chief executive Michael O’Leary blaming the slump on “lower fares, higher fuel and staff costs.”

Average fares fell 6%, although this was offset by a 14% rise in ancillary revenues due to strong sales of priority boarding and preferred seats (Ryanair’s annoying extras now account for around a third of its earnings). Overall, revenue per “guest” was flat at €55.

Traffic grew 11% to 42m, which helped drive a healthy 11% rise in revenues to €2.31bn. However, costs rose 19%, largely due to a 24% increase in the fuel bill, and spending on recent acquisition Laudamotion.

The FTSE 100 group continues to expand, launching 239 new routes plus four new bases in Bordeaux, Marseille, Southend and Berlin, and buying Malta Air.

Cloudy skies

The Ryanair share price has fallen sharply since peaking at around €19 two years ago, and currently trades at just over €10. That might tempt many, with City analysts predicting earnings will grow 30% in 2021. The group claims its “balance sheet is one of the strongest in the industry with over 60% of our fleet debt free,” while passenger load is an impressive 96%. 

Ryanair remains the ultimate low-cost airline but the model has come under pressure, and the push towards a no-deal Brexit may create turbulence, as could the slowing global economy. The group also faces the twin dangers of overcapacity and waning pricing power.

As a customer, Ryanair may be difficult to like, but there’s plenty to attract investors. In May, it’s board approved a €700m share buyback programme, returning almost €100m to shareholders in Q1. 

Ups and downs

You can’t ignore Ryanair but investors have a habit of overlooking FTSE 100-listed rival International Consolidated Airlines Group (LSE: IAG), despite a roster of big brand airlines including Iberia, British Airways and Aer Lingus.

IAG boss Willie Walsh also recently reported headwinds from rising fuel costs in the most recent quarter, worsened by unfavourable exchange rate movements and cheaper ticket prices, which have offset strong growth in passenger numbers.

The £8.70bn group has seen its share price plummet by more than a third, from 690p one year ago today to 438p. So maybe investors were right to overlook this one.

Think long

However, the lower IAG share price leaves it trading at a meagre valuation of four times earnings, while the forecast yield is a whopping 7.1%, with decent cover of 3.4. IAG has wider exposure to the global economy than Ryanair, looking beyond Europe to the US, Canada, Asia, Middle East and Africa. This offers a greater shield against Brexit and a European slowdown.

Both groups operate in a risky sector but may be due a rebound after recent share price slippage, especially if you remain bullish on the global economy. The ride may be bumpier than a Cash ISA, but I reckon it will be more rewarding over the long haul.

The post Forget 1% from a Cash ISA! I think these 2 FTSE 100 stocks could help you get rich and retire early appeared first on The Motley Fool UK.

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Harvey Jones 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.

Undervalued 

Following the stock’s recent weakness, bargain hunters have started to buy into the easyJet share price, and it is easy to see why. Shares in this household name are currently dealing at a forward P/E of just 9.6 and support a dividend yield of 5.3%. Historically, the shares have changed hands for between 11 and 17 times forward earnings, implying that the stock is somewhat undervalued at current levels.

However, as I have explained before, the European airline industry has changed dramatically over the past few years. EasyJet, which used to be the sector leader, is now under fire from all sides. Competition is growing and costs are rising. There’s no longer any guarantee that this company will be able to emerge victorious in a fares war.

The better buy

On the other hand, easyJet’s peer, Ryanair (LSE: RYA) does still seem to have a robust competitive advantage over the rest of the airline industry.

Even though the company is well known for its poor customer service, this doesn’t seem to have impacted its growth, and that might be because customers don’t really expect much from the airline anyway, so when they are greeted with delays and cancellations, there’s no surprise.

Customers have come to expect a slightly higher level of service from easyJet. They are paying more after all. The average easyJet fare is €60 compared to Ryanair’s €39. At the same time, Ryanair flies to nearly 100 more airports and offers almost 1,000 more routes that its smaller peer.

The lower average fee and range offered to customers goes some way to explaining why the Dublin-based airline is growing faster than its Luton-based peer. Over the past six years, Ryanair’s reported earnings per share have increased at a compound annual rate of 15.8% as net profit has grown at an average of 11.1% per annum.

Meanwhile, easyJet’s net profit has fallen from £398m to £358m in the six years between 2013 and 2018. It doesn’t look as if this trend is going to end any time soon. While both companies are expected to report declining earnings overall this year, analysts have pencilled in a much worse performance for easyJet, with a contraction in earnings per share of 30% expected, compared to just 15% for Ryanair.

Today’s numbers from Ryanair, which show total group traffic up 13% to 14.1m customers during May support the City’s view, in my opinion.

The bottom line

Considering all of the above, I think it is quite clear that Ryanair is the better investment. However, shares in the airline are a bit more expensive, dealing at a forward P/E of 12.3 based on current City estimates, falling to 10.2 for fiscal 2021. According to my calculations, that’s a premium of nearly 30% to easyJet’s current valuation.

However, considering the company’s competitive advantages, and track record, I think shares in Ryanair deserve this premium. I would much rather pay a higher price for a sector leader, than a bargain price for one of its struggling competitors.

The post Investors are taking a gamble on the easyJet share price: here’s what I’d do appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

And as they continue to grow, I think they could be great additions to your portfolio in 2019.

Cracking the code

It has long been said that airlines are terrible investments. Indeed, billionaire and founder of the Virgin Group, Richard Branson once said the best way to become a millionaire is to “start with a billion dollars and launch a new airline.“

However, despite the reputation the industry has for burning investors, Wizz Air and Ryanair seem to have cracked the code. In fact, Ryanair is a model company having produced a total return for investors of 13.7% per annum over the past decade, turning every £1,000 invested into £3,762. Few other companies can claim to have produced similar returns for investors.

Wizz Air has only been a public company since February 2015, so its record of performance isn’t as illustrious, although it is still impressive.

According to my figures, over the past three years, shares in the firm have produced a total return of 14.8% per annum for investors, turning every £1,000 invested into £1,534. A similar investment in the FTSE 100 would be worth just £1,208 today.

Set to continue

Demand for low-cost air travel is only increasing and as long as these companies continue to act rationally, I see no reason why they cannot stay on their current trajectory.

Wizz Air, in particular, is experiencing explosive growth. For December, the number of passengers flown by it increased 18.3% year-on-year with the load factor, a measure of how full the company’s planes are on average, rising 1.3% to 88.3%. Over the 12 months to the end of December 2018, the number of passengers flown by the group increased 19.6%, and the load factor rose 1%, even though capacity increased by 18.4%. 

These numbers appear to indicate that demand for Wizz Air’s services is expanding faster than the company can keep up with, which is excellent news for shareholders.

And even though Ryanair has been dogged by operational issues in 2018, according to the company’s traffic statistics for December, the number of passengers flying with the group in December increased 12% year-on-year. On a rolling annual basis, the number of passengers carried by Ryanair increased 8% to 139.2m.

Growing profits

Looking at the figures above, it is no surprise that City analysts expect Wizz Air to report substantial earnings per share (EPS) growth in the years ahead.

Specifically, analysts are forecasting a 27% jump in EPS over the next two years. Unfortunately, Ryanair’s bottom line is expected to contract as the company deals with higher costs, but growth is expected to return in fiscal 2020 and considering the rising demand for its services, I support analysts’ belief that the profit slowdown won’t last long.

So overall, if you have £2,000 to spend, I think these two airlines could be perfect additions to your portfolio in 2019 as their growth continues. Right now, shares in Ryanair are trading at a forward P/E of 11.2, and Wizz Air is dealing at 13.3, both undemanding valuations for top growth businesses in my view.

The post Have £2k? I reckon these unloved growth stocks are top buys for 2019 appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

The latest woe comes in the shape of a 7% fall in first-half profits, which the company put down to a number of issues, in addition to staff strikes. Air Traffic Control (ATC) disruptions were partly to blame, although average fares fell by 3% due to excess capacity in Europe.

Although agreements have now been signed with unions in the UK, Ireland, Italy, Portugal and Germany, problems with ATC, passenger demand, fuel costs and the like are an expected part of running an airline — and investors have to expect such cyclical occurrences.

Shares down

Although Ryanair shares are up around 75% over the past five years, they’re well down since their 2017 peak, having lost 35% in a little more than a year.

With earnings expected to fall in the year to March 2019, we’re still looking at a forward P/E of approximately 14, though that would drop to 13 on predictions of an EPS recovery by March 2020.

By contrast, easyJet (LSE: EZJ) shares are trading on forward P/E multiples of only around nine — and easyJet is paying decent dividends. We’ve seen a couple of years of big earnings drops, mind, and that led to a cut in last year’s yield to 3.4%.

But forecasts suggest a rebound in both earnings and dividends this year, with analysts predicting a yield of 5%. That suggests to me that easyJet shares, which have significantly lagged the Ryanair price over the past five years, are the ones that, on paper at least, are looking the more oversold and the bigger bargain.

And it hints that investors might be waiting to see proof of an earnings turnaround before they plonk down their cash.

Back to growth?

September’s full-year update spoke of “a strong performance in the fourth quarter with robust customer demand driving outperformance in both our passenger and ancillary revenue growth, and strong profitability,” and indicated headline pre-tax profit of between £570m and £580m.

While I typically steer clear of the airline industry due to so many factors being totally outside an airline’s control, I can’t help seeing easyJet shares as having a decent safety margin now. And unless the results are seriously out of line with expectations, I could see the share price starting to pick up again.

As for Ryanair and its higher valuation, whether that is justified will surely depend on the airline’s continued growth potential. The firm has taken delivery of 23 new B737s in the first half (to take its fleet to 450) and has added more than 100 new S.18 routes.

Opportunities?

And though the company has slightly reduced its winter capacity, it’s predicting a full-year traffic rise to 141m.

Higher fuel prices and the continuing squeeze on the airline industry could well lead to more casualties, with Primera Air having ceased trading in early October. So easyJet and Ryanair could be seeing some reduced competition — it’s during hard times that the best in business show their strength.

But the airline business is still one I won’t buy.

The post Is downtrodden Ryanair set to trounce the easyJet share price? appeared first on The Motley Fool UK.

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• easyJet shares plummet 30% in 3 months! Is it now a top stock to buy?

Alan Oscroft 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.

Having said that, today’s budget airlines are much slimmer operations than the giant national airlines, and they’re better able to cope with the ups and downs. I still expect their share prices to be more volatile than my FTSE 100 favourites, mind.

You can see that in easyJet (LSE: EZJ) which has been through a few years of varied performance, with a period of previous earnings growth turning downwards over the past two years — from 139p in 2015, EPS fell all the way to 82.5p by 2017.

The share price has been rocky too, and over five years it’s barely beaten the FTSE 100 with a gain of 15%. But dividends would have added another 18% to the total, and that’s not a bad overall return. Over the past 12 months we’ve seen a 29% share price gain on the back of an expected return to EPS growth, but since June it’s been slipping again.

Passengers

Passenger statistics are looking very solid, with August passengers up 5.6% and the company operating on a 96.4% load factor. Passenger numbers are also up 5.8% on a rolling 12-month basis. That follows on from a decent rise in July too.

Third quarter figures in July looked good, with revenue up 14% — and the company’s full-year guidance suggested pre-tax profit of between £550m and £590m. The downside is that, for various reasons, easyJet’s operations at Berlin’s Tagel have been problematic, with Tegel expected to bring in a loss of £175m this year. But it’s early days there, and Berlin looks like a good long-term opportunity to me.

On the valuation front, we’re looking at a forward P/E of 12.8 this year, dropping to 10.8 on 2019 forecasts — and the dividend is expected to climb too. 

On that, I see easyJet as a tempting buy now — but I’d be prepared for medium-term volatility.

Competition

Meanwhile, over at the airline that everyone loves to hate, Ryanair Holdings (LSE: RYA), the shares have doubled over the past five years. And even without dividends, that’s soundly beaten easyJet shares.

Traffic has been picking up too, with a 5% rise in Ryanair passenger numbers in August with 97% loading, plus an additional 0.5m passengers from Lauda for the first time (at 92% loading) to take its overall numbers up 9%.

Ryanair has also managed to keep its earnings growth going, though there’s a modest 10% fall on the cards for the year to March 2019 — which would be countered by a 10% upswing the following year if forecasts prove right.

Valuation

On that record, you might expect a higher valuation, but P/E multiples are in line with easyJet’s — at 12.5 for 2019, dropping to 11.3 a year later.

Ryanair does have a reputation for poor employee relations — and, actually, poor customer service too. 

As a customer, my choice (where there is one) would always be easyJet. But the way short-haul routes often have only one budget carrier servicing them, Ryanair is pretty much guaranteed to keep its planes full.

But from an investment perspective, the dividends combined with what I see as superior growth potential would sway me towards easyJet shares.

The post Tempted by the easyJet share price dip? Here’s what you need to know appeared first on The Motley Fool UK.

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• easyJet shares plummet 30% in 3 months! Is it now a top stock to buy?

Alan Oscroft 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.