What's driving the easyJet share price ahead of Wednesday’s FY earnings?
easyJet shares have shown impressive recovery since pandemic lows, but structural challenges and economic headwinds continue to impact the airline's valuation and growth prospects.
Recent easyJet share price performance
The easyJet share price has demonstrated notable resilience, climbing 30% over the past year but only 4.5% year-to-date (YTD), reflecting improving passenger demand and operational efficiency.
However, current valuations still sit almost 50% below pre-pandemic levels, highlighting the lasting impact of covid-19 on the aviation sector. The pandemic forced airlines to ground fleets while maintaining significant operational costs.
The company has faced multiple challenges during its recovery, including staffing issues, airport disruptions, and rising fuel costs. Despite these headwinds, easyJet has maintained its position as a leading European budget carrier.
Recent trading updates suggest passenger numbers are approaching pre-pandemic levels, though profitability metrics remain under pressure. The airline's load factor, a key efficiency measure, continues to improve. Wednesday 27th November full-year results should shed more light on these metrics.
Fundamental analysis of easyJet shares
Current market metrics suggest easyJet shares may be undervalued, with a P/E ratio of 10.96 and P/S ratio of 0.5. These figures are below historical averages for both the company and the wider airline sector.
Operating margins remain thin at 5.5%, though forecasts project an improvement to 6.7%. This limited cushion leaves the airline vulnerable to external shocks such as fuel price spikes or economic downturns.
The company's debt burden of €3.66 billion, accumulated during the pandemic, continues to weigh on financial flexibility. This leverage could impact future investment and growth opportunities.
Management's focus on cost control and route optimisation has helped stabilise operations, but structural challenges persist in the highly competitive European aviation market.
Dividend outlook and income potential
The reinstatement of dividend payments marks a significant milestone in easyJet's recovery, though current levels remain modest compared to pre-pandemic distributions. The forecast 4.5p dividend represents a 0.9% yield.
Dividend growth prospects appear limited in the medium-term, with yields expected to reach only 1.46% by 2027. This modest income stream may deter investors seeking stronger dividend returns.
The company's dividend policy reflects a cautious approach to capital allocation, prioritising balance sheet strength and operational investment over shareholder returns.
Income-focused investors may find more attractive yields elsewhere in the market, particularly given the uncertain growth trajectory for airline dividends.
Key risks and opportunities
Rising fuel costs present a significant challenge, with oil prices remaining volatile. The company's hedging strategies provide some protection, but margins remain vulnerable to sustained price increases.
Competition in the European aviation sector continues to intensify, with both traditional carriers and low-cost rivals expanding routes and capacity. This could pressure ticket prices and profitability.
Trading signals indicate positive momentum since October 2022, though geopolitical tensions and economic uncertainties could impact market sentiment.
TipRanks Smart Score
A TipRanks’ “outperform” smart score of 8 and LSEG Data & Analytics “buy” rating by 15 out of 21 analysts reflect confidence in easyJet's pricing power and earnings potential, but investors should consider the full range of risks.
easyJet LSEG Data & Analytics Analyst ratings
Technical analysis of the easyJet share price
In the course of the past couple of years the easyJet share price plateaued twice: between January and June 2023 around the 525p mark and between January and April of this year around the 575p level.
easyJet daily candlestick chart
Since September the easyJet share price has once more range traded, this time by oscillating around the 200-day simple moving average (SMA) at 530p.
As long as the August low at 404.7p underpins, the long-term uptrend, which began in October 2022, remains intact.
For a retest of the April peak at 591.0p to be seen, though, a rise and daily chart close above the early November high at 542.4p would need to ensue.
Above the 591.0p April high beckon the August 2021 to April 2022 highs at 721.0p-to-729.2p.
Support is being provided by the 55-day SMA at 501.3p, the psychological 500 mark and the late September low at 474.5p. While it holds, the short-term uptrend will remain valid.
How to trade easyJet shares
1. Research easyJet's financial performance and market position thoroughly
2. Choose whether you want to trade or invest
3. Open an account with IG
4. Search for easyJet shares in our platform
5. Place your trade
Whether going long or short, consider using trading alerts to monitor price movements.
Consider starting with a demo account to practice trading strategies risk-free.
Remember to always implement appropriate risk management strategies when trading airline stocks, given their inherent volatility.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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