An analyst at a leading City broker reiterated his ‘sell’ recommendation on easyJet PLC (LON:EZJ), saying the market is still waiting for a pay-off that is already baked into the share price.
“easyJet’s faster growth appears to be delivering the desired improvement in its strategic positioning, but at a cost,” said Gerald Khoo, analyst at London-based Liberum.
“The returns from this strategic investment are not yet evident, but appear to already be priced in.
“The deferral of aircraft orders allows the capex profile to be smoothed, but not until 2019.”
Reiterating his negative call, Khoo did increase his price target to £10 a share from £8.25, reflecting the company’s higher earnings estimates and revised capital investment profile.
By mid-afternoon the stock was trading at £13.50, up just over 4% - so the negativity didn’t filter through to the market.
“We remain concerned about easyJet’s rising leverage and weakening cash flow, albeit with management action having moderated some of these challenges,” Khoo said.
“A full valuation already pricing in earnings upgrades creates substantial downside risk if current consensus estimates are only met.”