Stock of the day 09/11/2015 – easyJet PLC

In a year that has been anything but, well, easy, can easyJet continue its rebound with its full year results on November 17th?

The first few months of the year saw easyJet take off, grazing £19.50 for the first time in its history at the end of March before settling around £18.50 to £19. However, things took an ugly turn with the announcement of the company’s half year results on May 12th. A pre-tax profit of £7 million for the 6 months to March, something that sounds piddly but is actually a big improvement on the £53 million loss the year before was joined by a more overtly impressive 3.8% increase in revenue to £1.8 billion. However, a warning about its full year profit was, frustratingly for easyJet, the main take-away from the report.

The company stated that April’s French air traffic control strikes got the second half of the year off to a disappointing start; so disappointing, in fact, that its full year profit is expected to be £25 million lower because of it. Add onto this a £20 million full year hit from currency movements and investors were spooked to say the least, pushing the stock 10% lower on the day of results. The sustained decline the followed the initial plunge eventually led easyJet to a 2015 low of £15.21 by mid-June, the stock’s worst price since November 2014.


(Source: IT-Finance.com 09/11/2015)

However, after hitting this nadir the company’s runway began to clear. Positive progress in the Greek debt saga (a weight on tourism-related stocks in general) lifted easyJet at the start of July before the company received a more specific boost from its Q3 trading statement at the end of the month. That update was almost the opposite of easyJet’s half year report; the company claimed that full year pre-tax profit should be 14% higher, falling somewhere between £620 million to £660 million, greater than the £636 million average estimate from analysts.

Those gains allowed the stock to hover between £16.50 and £17 for the rest of summer, before easyJet’s most recent interim update at the start of September pushed the company out of that trading band. A record month in August caused easyJet to raise its full year pre-tax profit outlook once again, this time to between £675 million and £700 million, allowing the stock to flirt with £18 for the first time since its half year results in May. And whilst it hasn’t exactly been able to full break that barrier in the intervening 2 months, it does still leave easyJet at a current trading price of £17.71 (IT-Finance.com, 09/11/2015).

How investors react next Tuesday will be dependent on just how accurate those pre-tax profit forecasts have been, especially after the half year hurt easyJet suffered. If the company hits that £700 million upper end of estimates it would not only be a record for easyJet but an impressive 20% increase year-on-year. And whilst some questions remain about its long-term growth capabilities, the stock could be on track to rematch its year (and all-time) highs if things go well with its full year figures.

easyJet PLC has a consensus rating of ‘Buy’ alongside an average target price of £19.54.