With grounded planes and cancelled flights, it’s not difficult to see why EasyJet's [EZJ] share price is down 65%. The stock took a further hit when the UK government re-imposed quarantine measures for those arriving from Spain, Britain’s favourite holiday destination. The opening of travel corridors to European destinations had allowed EasyJet’s share price to enjoy a brief rally at the start of June, but now the stock is trading near 52-week lows.
While it’s difficult to hold out much hope for EasyJet’s Q3 earnings, some investors will be asking whether the current price represents something of a bargain. After all, EasyJet reiterated its strong liquidity position in last quarter’s earnings and, presumably, air travel will return to some level of normality post-outbreak.
So, will EasyJet’s Q3 results help boost investor confidence? Or are there more losses to come?
When is EasyJet reporting Q3 earnings?
What could move EasyJet's share price post-earnings?
Effect of Spanish quarantine measures
EasyJet's share price has been hit hard by the UK government's decision to reimpose a 14-day quarantine for those arriving from Spain. The government U-turn was front-page news and saw EasyJet's share price fall 10.5% in a single day.
EasyJet has written to the UK government arguing for a more 'nuanced' approach to quarantine measures in a joint letter with British Airways, Tui, Heathrow Airport and over 40 other signatories.
Whether this letter has the desired effect remains to be seen. For now, shareholders should watch for any clues as to how the ban will impact future quarters.
EasyJet's share price drop after UK government imposes quarantine from Spain
Passenger numbers during the pandemic
Given that results will cover the coronavirus outbreak period, it will be no surprise to see a sharp downturn in revenue as fewer passengers have taken to the skies.
In half-year earnings, EasyJet saw revenue come in at £2.38bn, a 1.6% gain on the previous quarter. Passenger numbers decreased by 7.4% to 38.6 million due to the impact of the coronavirus, while capacity decreased by 7.6% as flights were cancelled in March due to the outbreak.
EasyJet's Q2 passenger numbers - a 7.4% drop
However, these earnings were for the six months ending 31 March. As EasyJet's fleet was grounded on 30 March, it's difficult to assess the impact of the outbreak using these figures. No-frills rival Ryanair could offer a better benchmark.
Ryanair saw passenger numbers fall 99% in their recent quarterly results, with revenue down 95% compared to the same period last year. Such a decline might already be priced into EasyJet's share price. If not, the stock could be in for some turbulence post-earnings.
The steps taken to agree two loans worth around £1.7bn in funding at the outset of the crisis will count in EasyJet’s favour this quarter. The airline also had a £2.4bn cash position as of 22 June. Together with cost-cutting measures, that could help the carrier weather the current uncertainty.
Investors will now watch closely to see how much of this cash EasyJet is currently burning through in the Q3 results. Signs of a financial deterioration could send EasyJet's share price into a tailspin.
|PE ratio (TTM)||8.29|
|Quarterly Revenue Growth (YoY)||1.7%|
EasyJet share price vitals, Yahoo Finance, 3 August 2020
So, time to buy EasyJet?
The scale of the challenge facing EasyJet and the rest of the airline industry is difficult to overstate. Airlines are notoriously expensive to run and, with virtually no passengers, the carrier's Q3 results could well deliver a further blow to EasyJet’s share price.
For bargain hunters, EasyJet's share price could look attractive, especially as it's trading well below its 52-week high. However, the UK government has proven it is not afraid of suddenly re-imposing lockdown measures on international travel. This uncertainty could leave EasyJet's share price volatile for a long time to come.
Among the analysts tracking the stock on the Financial Times, EasyJet carries an 820p average price target. Hitting this would see a 66.26% upside on EasyJet’s share price through 31 July’s close.