Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

  • Updates
  • disruptive innovation

Can easyJet’s share price fight through upcoming headwinds?

EasyJet’s [EZJ.L] share price has made a decent recovery from March’s year lows, as investors become a little less jittery about the implications of the Russia-Ukraine war.

Yet the conflict’s repercussions could yet come back to haunt the airline. Fuel will now come at a premium, while an increased dependence on coal in Europe, and in particular Germany, is set to lead to a higher carbon tax. Add to the mix soaring inflation and fast-rising interest rates – likely to leave consumers with less disposable cash – and it’s clear there are several risk factors which could affect the airline.

With all these issues in mind, where do institutional investors stand on easyJet’s share price? Are there some bright spots among the potential clouds, or, with a possible recession looming, is the stock one for investors to disembark from?

EasyJet’s share price gains altitude

The easyJet share price was flying high above 1,250p in February 2020, prior to its sharp descent as the Covid-19 pandemic hit. The airliner’s shares have been on a bumpy ride since then, rising back over 900p in May 2021, before slumping to a 52-week low of 417.40p just over a month ago, on 7 March. Since that nadir, the stock has gained 31.10% to last week’s 574.20p close, ahead of the long Easter weekend.

 

Global headwinds cast doubt over airline’s prospects

Soaring fuel prices are already hitting the airline industry, and despite being able to cover itself to a certain extent against rising oil prices through hedging, easyJet, along with other airlines, is likely to see its margins shrink. As Motley Fool’s Zaven Boyrazian points out, this may mean that, even if passenger numbers return to pre-pandemic levels, “the company may not return to the same level of profitability as before”.

Another blow to profitability comes from the European Commission phasing out an exemption to the European Carbon Allowance that it has granted to airlines like easyJet, report the Motley Fool. With a number of countries looking to cut back on Russian oil, Germany’s government has reopened “many of its coal power plants”, reports the Motley Fool. This move will clearly have a negative impact on carbon emissions, pushing up the price of the European Carbon Allowance. With easyJet’s operations based in Europe, its profit margins could soon be under even more pressure.

Institutional investors split over outlook

Data from artificial intelligence specialists Irithmics shows that larger investors, such as fund managers and pension funds, are split when it comes to the airline, reports Stuart Fieldhouse in thearmchairtrader.com. With “a lot of negativity out there in the market right now”, longer-term, strategic investors are unlikely to be increasing their easyJet stock allocations imminently. However, the data suggests that investors with a more short term, tactical approach, are more positive on easyJet’s prospects. Despite that, these investors’ appetite remains limited, due to an expectation of negative news on the horizon.

EasyJet’s six-month trading statement, released 12 April, may have gone some way to easing these concerns, however, as it showed some encouraging signs of recovery. Losses are lower, while its cash burn was also eased, thanks to a significant jump in passenger volumes. The airline’s load factor rose from 68% in January, to 81% in February and March, where the number of flights increased to 80% of 2019 levels.

This pushed up half-year revenue to £1.5bn. With costs at just over £2bn, easyJet expects to see a first half pre-tax loss of between £535m and £565m. CEO Johan Lundgren (pictured above) struck a positive tone, saying: "We remain confident in our plans which will see us reaching near 2019 flying levels for this summer and emerge as one of the winners in the recovery."

So, where is easyJet’s share price heading next?

While there’s sure to be turbulence ahead, easyJet’s earnings update suggests the outlook is looking brighter. Despite the global headwinds the company is facing, analysts at broker Goodbody said easyJet’s update was “as good as we might have hoped”, and forecast the airline would return to a small profit in the full year, report the FT.

The 18 analysts offering 12-month price targets for easyJet have a median target of 775.00p, with a high estimate of 840.00p and a low estimate of 425.00p, according to the FT. The median estimate represents a 34.97% increase from last week’s close at 574.20p. The consensus price target is backed up by a positive overall broker recommendation, with four “buy”, 14 “outperform”, three “hold” and two “sell” ratings, for a consensus rating of “outperform”.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

  • Includes free newsletter updates, unsubscribe anytime. Privacy policy

Latest articles