​​​Is it time to buy potentially undervalued EasyJet shares?

​​​Is it time to buy potentially undervalued EasyJet shares?

​EasyJet, like other low-cost, short-haul carriers, faces stiff competition in the industry, making growth challenging. Additionally, the company is expected to experience a 22% rise in costs for the 2023 financial year due to industry-wide inflation pressures. These factors pose risks for the airline going forward.

​However, there are potential rewards for EasyJet now that the impact of the pandemic is receding. The company's 2023 results show a significant improvement, with a pre-tax headline profit of £455m, a £633m increase compared to the previous year. This positive performance reflects the airline's return to pre-tax profit after the pandemic-related groundings and its goal of achieving £1 billion in pre-tax profit over the medium term.

​Last week Bank of America recently upgraded EasyJet due to expectations of increased capacity, stable fuel costs, and a rise in the number of people going on holiday. The airline aims to drive growth through higher passenger numbers, targeting over 35% year-on-year growth, as well as increasing seat prices.

​EasyJet has expressed concerns about the conflict in the Middle East, however, particularly the Israel-Hamas conflict that began in early-October. The company's updates this week will likely cover the period since the conflict started.

​According to CitiGroup, engine flying times for both wide and narrow-body jets decreased in December, although engine hours for the latter remained above 2019 levels.

​In terms of valuation, EasyJet currently has a price-to-earnings (P/E) ratio of nearly 11, which is around average based on the current financial results. However, considering the potential for future earnings, the ratio appears low. For instance, EasyJet holidays is expected to grow by up to 35% in the 2024 financial year, and the company aims to fly 42 million seats in H1 2024, an 11% increase year on year. If these forecasts are met, profits should also increase, making the stock undervalued at its current price.

​Analyst ratings for EasyJet

​Refinitiv data shows a consensus analyst rating of ‘buy’ for EasyJet with 3 strong buy, 10 buy and 7 hold – and a mean of estimates suggesting a long-term price target of 639.74 pence for the share, roughly 28% higher than the current price (as of 22 January 2024).

​Technical outlook on the EasyJet share price

​EasyJet’s share price is finding it difficult to break through its 530 pence barrier which has capped the budget airline’s share price for the past year.

​EasyJet Weekly Candlestick Chart

​The 200-week simple moving average (SMA) at 539.9p needs to be overcome on a weekly chart closing basis for a long-term bullish reversal to be confirmed.

​In this case the mid-October 2021 low and the mid-April 2022 high at 589.4p to 604.2p would represent the next higher target zone.

​The EasyJet share price, which is flatlining since the beginning of the year, remains within a medium-term bullish trend even if it has been side-lined since the middle of December.

​EasyJet Daily Candlestick Chart

​While the early January low at 475.4p underpins, the medium-term uptrend will stay intact with the 11 January peak at 534.0p remaining in sight.

​Only a currently unexpected bearish reversal and fall through the 475.4p early January low would have negative connotations and would probably take the easyJet share price back down to the September and October highs at 464.4p to 450.7p. Slightly further down lies the mid-November high at 445.6p which may also be reached in this scenario.