easyJet full year results: can good news drive the share price higher?

When does easyJet report full-year earnings?

Earnings for easyJet will be reported on 19 November, covering its earnings for the 2019 financial year.

easyJet earnings – what does the City expect?

The company is expected to report pre-tax profit of £426 million, down from £578 million a year earlier. Revenue is forecast to rise to £6.3 billion, an improvement over the £5.9 billion in financial year (FY) 2018. The company has beaten estimates for earnings and revenue in five of the last eight reports. Passenger numbers are expected have increased 8.6%, but with capacity up over 10%, total revenue per seat is expected to fall 2.7% for the financial year.

In the most recent trading update, easyJet suffered from the impact of poor weather across Europe, along with air traffic control strikes and baggage handling issues at Gatwick. It also upgraded profit forecasts, to a £420 million-£430 million range, from the previous £400 million-£440 million guidance, thanks to boost in business due to pilot strikes at its rivals such as British Airways and Ryanair.

Overall easyJet seems to have done much better than its rivals over the past few months. Unlike BA and Ryanair, the firm endured fewer cancellations, helped by a greater availability of crews and aircraft, while its rivals had to leave over 200,000 passengers on the ground. Along with the bankruptcy of Thomas Cook, which will have boosted earnings, these factors are likely to fade in coming months, which may result in a relatively cautious outlook for the first half of the new financial year.

In our last update on the firm, we noted that a possible recession in continental Europe and Brexit concerns might hold back progress. These observations still hold, although a Brexit deal between the UK and EU is now an increased possibility. easyJet has been boosted by the failings of its rivals, and as this impact fades the firm will have to boost its competitiveness if it is to see a meaningful bounce in its valuation.

How to trade easyJet’s earnings

easyJet currently has 27 analysts covering its shares, of which nine have ‘buy’ ratings, 13 have ‘holds’, with five ‘sells’. The median target price is £11.73, below the current price of £13.07.

The shares now trade on a forward price-to-earnings ratio (P/E) of 13.9, above the five-year average of 11.6, and their highest level since mid-2018. The valuation has increased steadily over the past few months, leaving less room for disappointment if earnings forecasts are missed.

The average move on results day is 4.6%, while current options pricing points to an implied move of 3.8% on the day of results. On 8 October, the day of its last trading update, the shares fell 8.1%, while its half-year report on 17 May witnessed a bounce of 5.4%.

Volatility in easyJet shares has declined since mid-October; on 17 October the fourteen-day Average True Range (ATR) hit 53.7, its highest level since July 2016. This however marked a peak in volatility, which until then had been steadily rising since mid-June. The current ATR is 40, indicating an average intraday move of 3%.

easyJet share price – technical analysis

Since mid-September the rally in easyJet shares has continued, even with the 8% decline in October following its most recent trading statement. Indeed, the share price has continued to carve out a series of higher highs and higher lows, with the most recent rally finally taking out the £13.00 high from February.

Since October, substantial pullbacks have found buyers, creating a smooth upward trend, and a near-term pullback towards £12.80 would continue to find support at the rising trendline from September. Further declines head towards £11.85 and £10.65, while a move above £13.70 targets £14.42.

Easy part of the rally over for easyJet

Earlier in the year, easyJet was cheap and benefitted from the tailwinds of its low valuation along with the one-off factors seen in its most recent trading update. While key macro worries remain, it has seen a better set of numbers of late, which has helped to boost the valuation. A steady rising trend in the share price will help tempt in fresh investors as well, as the recovery continues for the airline.