Shares of EasyJet (GB:EZJ), a leading British airline, have rallied about 50% year-to-date, thanks to the strong rebound in travel demand following the pandemic years. Despite higher airfares and macro pressures, travel demand remains impressive, as investors are cutting down their other discretionary spending to direct their money toward travel plans. The rally in shares of EasyJet and certain other airlines seems far from over, with analysts estimating further upside.
EasyJet Gains from Robust Travel
EasyJet and other airlines were battered when COVID-induced lockdowns brought the industry to a standstill and led to massive losses. In the first half of Fiscal 2023 (ended March 31, 2023), the airline’s loss before tax improved to £411 million from £545 million in the comparable six months of the previous fiscal year. Revenue increased by 80% to £2.7 billion, driven by higher prices and pent-up demand.
Despite an uncertain macroeconomic backdrop, EasyJet said in May that it is confident about exceeding the market’s Fiscal 2023 profit estimate of £260 million. The airline continues to boost its capacity, which would help it meet the strong summer bookings.
Last month, the International Air Transport Association (IATA) boosted its industry profit forecast for 2023 to $9.8 billion from $4.7 billion, fueled by robust travel demand and easing oil prices. IATA expects revenue to increase 9.7% to $803 billion this year, which indicates the airline industry is moving closer to 2019’s pre-pandemic revenue level of $838 billion. However, the industry could face certain risks such as staff shortages, potential strikes, and delay in the delivery of new planes.
Recent Analysts’ Ratings
On Monday, JPMorgan analyst Harry Gowers increased the price target for EasyJet shares to 570p (an upside of 15.3%) from 550p and maintained a Hold rating.
On June 29, Bernstein analyst Alex Irving reiterated a Hold rating on EasyJet with a price target of 500p.
Last week, RBC Capital analyst Ruairi Cullinane initiated coverage of EasyJet with a Hold rating. While the analyst is encouraged by the airline’s “Holidays” program, he sees lower margins and free cash flow generation (net of lease payments) compared to Ryanair (GB:0A2U) and Wizz Air (GB:WIZZ). Cullinane further added that website visitor growth was stronger for both Ryanair and Wizz Air compared to EasyJet. Nonetheless, Cullinane has a price target of 540p for EZJ shares, which indicates an upside of 9.2%.
Is EasyJet a Buy or Hold?
Overall, EZJ shares earn a Hold consensus rating based on five Buys, six Holds, and two Sells. The average price target of 592.22p implies about 20% upside from current levels.
While the consensus rating is a Hold for ESJ, analysts seem more bullish on International Consolidated Airlines (GB:IAG) shares. With six Buys and seven Holds, IAG scores a Moderate Buy consensus rating. The average price target of 194.66p reflects an upside of about 19%. IAG shares have risen about 27% since the start of 2023.
Conclusion
While several analysts are sidelined on EasyJet shares, they continue to see further upside potential due to resilient travel demand. The airline is also taking the required streamlining measures to improve its profitability and boost its capacity.
