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easyJet knocked by JPMorgan downgrade, as sector roiled by another Ryanair profit warning

Published: 20:45 18 Jan 2019 AEDT

easyJet plane
They also cuts target prices for Ryanair and Wizz Air but retained 'overweight' ratings on both

easyJet PLC (LON:EZJ) shares topped the FTSE 100 fallers on Friday, knocked by a downgrade from JPMorgan Cazenove and as the airline sector was roiled by another profit warning from Irish budget player Ryanair PLC (LON:RYA)

In a note on European low-cost airlines, the US bank’s analysts cut their rating for easyJet to ‘neutral’ from ‘overweight’ and reduced their target price for the FTSE 100-listed firm to 1,450p from 1,800p.

READ: Ryanair descends after profit warning as lower winter fares offset rise in traffic

They reiterated ‘overweight’ ratings on both dual London and Dublin-listed Ryanair and on FTSE 250 budget airline Wizz Air PLC (LON:WIZZ), but also cuts target prices for the two – Ryanair to €13.00 from €19.75 and Wizz to 3,750p from 4,000p.

In morning trading, easyJet shares were 2.2% lower at 1,143.50p, while Wizz lost 0.8% at 3,012p, and Ryanair shed 1.4% at 9.88p.

The JPMorgan analysts said: “We consider all three to be long-term winners in the airline industry, with solid structural growth prospects.”

They added: “Current low valuations reflect multiple investor concerns: a tough winter (too much capacity driving down fares); Europe’s slowing economy; the significant unknowns surrounding Brexit; and specific issues at RYA.”

The analysts noted that easyJet and Ryanair are both trading at around a 30% discount to their average price/earnings since 2005.

They said they think easyJet and Ryanair have similar upside potential but, tactically, the recent underperformance of the Ryanair presents a “mean reversion opportunity”, hence their downgrade of easyJet.

On Wizz, which has less trading history, they said it also looks attractively valued and would consider the stock a long-term ‘buy and hold’.

READ: easyJet, British Airways and Ryanair face demand uncertainty in 2019 as Brexit looms, says Barclays

In an airlines sector note yesterday Barclays also cut its rating on easyJet, to 'underweight' from 'equal-weight' cut its target price to 1,200p from 1,500p.

Barclays said it thinks the growth profile for easyJet “lacks some momentum in our view, not helped by difficult comparables and possible UK demand related risk”.

easyJet is scheduled to deliver a first-quarter trading update next Tuesday, 22 January.  

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