City broker Cantor Fitzgerald reckons budget airline Easyjet PLC (LON:EZJ) is ‘lacking momentum’, and expects competitive pricing and higher fuel costs to hamper profits going forward.
Fuel costs are expected to rise by around £20mln in 2017, while the weaker sterling is likely to have more of an adverse impact (£105mln headwind) on margins, the broker said.
As a result, Cantor analyst Robin Byde has slashed his profit before tax forecasts for the next three years by around 16% to £362mln, £408mln and £450mln respectively.
“Forward bookings are slightly up on last year but capacity growth in the market, and the dampening effect this has on unit revenues, is unlikely to abate before the summer,” Byde explains in his note today.
“We remain cautious on the outlook for unit revenues despite hints of some improvement from easyJet. Capacity build by easyJet and rival carriers, particularly on sunshine routes, is likely to continue to act as a drag on yields.”
The fact that Easter falls in easyJet’s second half this year reduces near-term visibility, Byde adds,
Byde has moved the stock to a ‘hold’ from ‘buy’, with a price target of £11.50 – which he thinks is still “fairly attractive”.