Analysts at Exane BNP Paribas have reversed their thoughts on two of the UK’s largest airlines: easyJet PLC (LON:EZJ) and Ryanair PLC (LON:RYA).
Dublin-based Ryanair had been the analysts’ preferred pick out of the two, but it now prefers the orange and white livery of easyJet.
Easyjet profit per seat to climb
“We think that the market is continuing to underestimate the likely positive impact of the shift in the group’s competing capacity in Europe near-term,” wrote a team of number crunchers headed up by James Hollins.
“We are [also] increasingly convinced that the higher guided unit costs will be repaid longer-term in improved Profit Per Seat (notwithstanding fuel headwinds).”
Hollins & co. moved the stock up to ‘outperform’ from ‘neutral’, while they also hiked their target price by 21% to £20.
No “compelling value” in Ryanair anymore
Despite stating Ryanair is “among the very best airlines in the sector”, Hollins went the other way with his recommendation: moving to ‘neutral’ from ‘outperform’.
He is still a fan of the stock over the long-term but has concerns over costs in the nearer-term, while the recent rally means there is limited upside to Exane BNP Paribas’ €17 price target.
“Our earnings estimates have reduced materially (FY19 -15%, FY20 -22%) to reflect both higher fuel and additional costs associated with making the business more resilient,” read the research note.
“Despite robust FCF (free cash flow) supporting buybacks in our estimates, we no longer see compelling value in [the] stock.”
Norwegian gets a lift, too
Away from UK stocks, but still of interest to International Consolidated Airlines Group PLC (LON:IAG), Hollins upped his recommendation for Norwegian Air to ‘outperform’ from ‘neutral’.
Norwegian is a reported takeover target for British Airways owner IAG, and the analyst noted “the likely continuation of a takeout premium being applied” to the company’s shares.
Ryanair shares were down 2.5% to €16.12 once the markets in London finally opened, while Easyjet edged 0.5% higher to £17.46.