UBS has downgraded its rating for Irish budget airline Ryanair PLC (LON:RYA) to ‘neutral’ from ‘buy’ on valuation grounds following around a 25% appreciation in the share price in the year to date.
The Swiss bank raised its target price for the airline’s shares to €18.85, up from €16.00, with the stock changing hands at €18.28 this morning, unchanged on last night’s close.
In a note to clients, UBS’s analysts said they continue to view Ryanair as the "best of breed" short haul operator in Europe but they see the risk-reward for the airline stock now as “balanced”.
READ: Ryanair posts record annual profits despite sharp falls in average fares
The analysts also pointed out that the downside risk to Ryanair shares in the short term is limited given the €600mln share buyback program the firm announced with this week’s record full-year results.
“Nevertheless,” they added, “further near term capital returns will be dependent on how the company performs over the important summer 2017 period and CEO says capital returns in the form of buybacks preferred over special dividends if shares trading on a PE of 15x or below.”
The analysts increased their earnings per share forecasts for Ryanair by 6% and 9% respectively for 2018 and 2019.
They concluded: “Despite the uncertainties over the summer period we think risk to forecasts is on the upside with anecdotal evidence from other airlines and related travel companies. We think our travel intentions survey is supportive for travel related “