By Can Easy Jet (FTSE: EZJ) Fly Higher Amid The Turbulence?
This TabStocks Article considers if Easy Jet is a good investment in 2022
Easy Jet Stock Ticker
EZJ
Stock Name and Trading Stock Exchange
Easy Jet Plc – London Stock Exchange (LSE: $EZJ)
– OTCPX (OTCPX: $EJTTF)
– FTSE 250 (FTSE: $EZJ)
Easy Jet Stock Sector
The company is a British international airliner with its primary operations in Europe and beyond.
The Easy group provides low-cost passenger flights to its customers, offering various suites that are meant to accommodate luxury and convenience
It is ESG-focused and committed to reducing its carbon footprints and achieving net zero.
Easy jet has over 300 aircraft in its fleet, functional in some 30 countries throughout Europe.
The airline does other activities like carrier services, aircraft trading, and leasing. Easy Group runs several subsidiaries garnered over the years through mergers & acquisitions.
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It was founded in 1995 by Sir Stelios Haji-Ioannou, who still retains a majority stake (15.269%). Easy Jet is headquartered in Luton, London, UK.
Recent Most Important News about Easy Jet
An all-time plunge in the stock has been particularly striking. What’s even more perplexing is that its fundamentals are great with overall business ticking upwards whilst it’s crashing.
Easy Jet has plans underway to upgrade its fleet to Airbus systems. Controversy surrounded this decision two years prior, stirring mixed reactions among stakeholders.
This eventually led to Sir Stelios getting ousted from control of the company last year, retaining a diluted stake.
The team is relentless on environmental concerns and has fostered partnerships with legacy manufacturers like Rolls Royce and Airbus to aim for zero emissions.
On the dull side, the airline faces serious disruption stemming from a strike by French Air Traffic Control.
Gatwick Airport, its largest airport and the second largest in the UK was forced to shut down in the previous month due to absentia of the said staff.
This shutdown has somewhat contributed to the tanking share price. Faltering markets are similar to be blamed with the UK having it rough.
Inflation is at record highs; the pound sterling is collapsing, and natural disasters took their toll on the already devastated economy.
The aviation industry is getting back to form after the pandemic ravaged passenger airlines.
Current Position of Easy Jet
Easy Jet now seats at a market capitalization of £2.2B, a drastic shrink from its top. The pandemic was a death storm for airlines and Easy jet was hit hard.
All flights were grounded in March 2020 as a result and the UK government gave bailouts to these companies.
Easy jet secured a loan of £600M from the government as part of the Covid Corporate Financing Facility. Funding received in August 2020 summed to £2.4B.
These were dark moments and demand was at an all-time low. Consequently, it was forced to close three bases in the UK during the year, recording huge losses.
Things have eased off today with plenty of demand as the pandemic became endemic. 2021 was a great year as the markets came raging back with a vengeance.
Airlines followed strict protocol and could not carry at full capacity thus most only recovered partially.
Easy Jet was in the negative last year as a result of the restrictions, but growth was rapidly increasing.
This year started well with the company reaching its pre-pandemic levels.
The Russia-Ukraine conflict intensified in April and brought along adverse effects to airliners. The skyrocketing price of fuel became a burden, driving up costs of operation.
Flights to the contentious countries in Eastern Europe were suspended indefinitely.
The airline has done well nevertheless and capitalized on the initial run to maximize returns.
It strategically enacted a hedging mechanism to purchase oil at 50% lower than the market price.
This smart move will give it leeway to make a turnaround and plans for the coming summer holidays, which are expected to be very lucrative.
Easy Jet has been busy in the last few months and just bought 56 new Airbus jets. These new planes are cheaper to run, produce fewer emissions and accommodate more passengers.
Travel stocks have been vulnerable to market swings and travel chaos is expected following the global economic uncertainty.
This summer will be a test for airlines that are battling with staff shortages, missing packages, and economic hardships.
Easy Jet reported impressive quarterly unmatched in the industry.
Speaking to Quest means business, CEO Johan Lundgreen stated that easing travel restrictions has resulted in pent-up demand:
Because of the carbon-offset thing, we are coming out as the preferred airline,
he said.
Travel bookings for leisure travels and business travels are improving, with the latter doing much better gaining parity with pre-pandemic levels.
Easy Jet is Europe’s largest airline in leisure destinations and believes this is the segment that has the most potential.
The company has many rivals like Wizz Air and IAG, who are in the same scenario.
All eyes are on the summer holidays and how aviation players are accordingly positioning themselves.
Looking beyond the short-term, Easy Jet is well-capitalized, and its balance sheet is well-positioned to absorb limited temporal shocks.
Easy Jet Stock Price chart
The equity markets are depressed and $EZY reached a bottom low in the decade.
From the chart above, we see the stock is trading at 296.4p, up by (+1.26%) on the close of the last week in September.
The stock has plunged by 82% from its all-time high, thus making investors uneasy but still optimistic to grab more shares cheap.
$EZY is in the bear territory over the past few months, sharply dropping from mid-February when it hit a high of over 72p.
A lot of selling action has been witnessed and thus contributing to the plummet. The stock is considerably undervalued with a fair value of £9.15.
Sentiment on Easy Jet
There’s a bearish trend on the stock in the near term but this has got investors excited to buy the dip.
Strong demand is forecasted in the coming summer holiday, but external pressures could weigh in on the performance.
The fuel hedging strategy will likely cushion it from the unsteady prices. The airline is on the path to recovery, and this is an incredible opportunity to get in the game.
Easy Jet is posting remarkable figures compared to the two preceding years, with a net loss of £1.3B in 2020, unprecedented throughout its 25-year history.
Investors who have ‘boarded’ the Easy Jet stock see it as a steal, in light of the current price.
Anything below £3 is a bargain, there is every probability this will resume the £4 altitude,
stated an investor.
Pros of Investing in Easy Jet
- Strong Financials – The company uses a low-cost strategy to increase returns and liquidity to tap new prospects. The balance sheet is also well-managed with no short-term debt and fixed rates.
- Sustainability efforts – Easy Jet is a regional leader in sustainable operations and is focused on working with other stakeholders to combat emissions. It ranks a B in the CDP climate change score.
- Accelerating Growth – Fleet expansions, increased capacity, and a stellar reputation in leisure travel, all place it in good stead to dominate the industry. It is the fastest growing holiday company as of 2022, with over 1M passengers.
- Cheap Valuation – The company is still down by a factor of at least 4 from its intrinsic value. It is looking very attractive at these fallen prices.
Cons of Investing in Easy Jet
- Labor Headwinds – Wages have gone up dramatically following the record inflation seen in the UK. These protests have resulted in delayed flights threatening the company’s performance.
- Macroeconomic issues – The pound sterling is crashing, and the domino effect is adversely affecting the industry. The ECB is raising interest rates, and this has resulted in expensive capital, Oil price volatility, and reduced travel demand.
Profits for Easy Jet
Revenues are pouring in this year as the company has gone to great lengths to ensure this. It announced its quarterly results this year which surpassed expectations.
Revenue for the quarter skyrocketed by +524.17% coming in at £749M. Operating expenses went up by +36.29%, recorded at £261M.
Net income for the quarter increased by +21.49% for the quarter, registered at -£215.50M. The net profit margin increased by +87% YOY, posted at -28.77%.
EBITDA for the quarter ticked higher by +28% over the year, valued at -£169.50M. Although not yet profitable, this is expected to turn positive in the few coming years.
The balance sheet of the company looks pretty swell, with cash and short-term investment standing at £3.51B, representing a +50% increase over the year.
Total assets were valued at £10.34B, rising by +24.4% over the year.
The company has high debt in the billions of pounds, typical for mega airlines which require intensive funding.
The company has high liquidity but not a lot of free cash flow due to the nature of the industry. Thankfully, it can secure funds even from the government to meet its needs.
The metrics for the company are great, but it needs a breakthrough in the core business activity as the cash burn is high and capital is no longer cheap.
Growth Likelihood and Potential for Easy Jet
The travel sector is a cyclical one, especially after recessionary periods. 9/11, the financial crisis, and the Corona crisis all heavily impacted the sector.
In bull markets, the industry is at its prime. However, easy Jet has one trick down its sleeve and that is the business flights that do well irrespective of the market situation.
Alternatively, the airline could venture into cargo/freight services which do well even during the pandemic.
The industry will take time to stabilize and could probably be until the next bull run.
Short-term headwinds will persist, but this airline group is a survivalist that has seen major pullbacks.
It could tread upwards over the next decade once the good times are back.
Airlines could potentially go bankrupt in the next collapse, in the wake of currency debasement and governments are not able to bail them out.
By diversifying its interests in leisure, business, and carrier service, Easy jet mitigate the risk of the collapse of a single segment.
The company is so well-structured that if all else fails, a looming takeover could be very possible.
Overall Verdict on Easy Jet
Analysts rate the company as a ‘strong buy’, given its current cheap price.
The stock is a long-term performer and is now forming a falling wedge pattern indicating a strong bullish upside.
Based on yearly moving averages and oscillators, $EZJ is a buy. The coming days will be crucial in assessing its growth prospects.
An entry at the current price is appealing, to say the least, considering it is at decade lows.
Patience is still the name of the game, as more time is needed to wither through the bearish storm.
$EZY has just made its comeback and the temporary setbacks will not impede its massive potential in the long haul.
The Covid turbulence is now over, Omicron variants have equally been stressful but have been tackled.
As it navigates through global turbulence, its experience in such encounters will be useful for the airline to come out victorious.
$EZY has what it takes to come out on top.
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