Easyjet (LON:EZJ) has received a double upgrade from HSBC, which sees the low cost airline as cheap compared to rival Ryanair (LON:RYA).
The broker’s rationale is straightforward enough.
Either Easyjet’s management takes the necessary steps to turn trading around and reduce the current valuation discount to Ryanair or someone else will.
EasyJet trades on 21% earnings ratio discount to Ryanair and a 36% discount on a multiple of average peak margins.
“We would expect peers to be interested in its strategic position, network and brand.”
HSBC sees both airlines as long-term strategic winners in the low cost market with solid strategic positions and strong balance sheets.
In particular, both will benefit from significant fuel price improvements next year, in contrast to their low cost competitors.
Both airlines get upgrades, but easyJet is the stand-out with a move to ‘buy’ from ‘reduce’ while Ryanair goes to ‘hold’ from ‘reduce’.
Target prices are now 1,150p (from 800p) for easyJet and €12 (from €8.50) for Ryanair.