Ryanair Holdings Plc (LON:RYA) has been somewhat reluctantly upgraded by Bernstein, with the bank moving its rating to “market perform” from “underperform”.
Analyst Daniel Roeska said in a note that the budget airline as being “still doomed to grow”, and said at the current share price, around €15, Ryanair is at fair value.
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“Our central thesis was that Ryanair, ‘Doomed to Grow’, was overextending its business model which would dilute profit per passenger as it grew to 200m in FY2024,” the analyst said in a note.
“Notwithstanding its great success in European aviation, its stock price at the time was predicated on high growth and higher profits per passenger, something we were skeptical of.
“Fuelled by its mismanagement of pilot staffing, and facing increasing labour pressures after the ECJ ruling in August, markets have become more skeptical of Ryanair's capability to continually grow earnings, too.”
The analyst added that Ryanair is cornered. He said: “if they stay on their current growth path the increasing complexity and maturity of the business model is likely to follow our original bear-case and decrease EBIT per passenger.
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“If they decide to keep the 'old' business model intact and reduce growth, profitability per passenger may be better than we forecast but earnings growth will still slow down.”
“Looking at our 12 to 18-month price target, we see up and downside better balanced and the stock currently close to fair-value.”