Credit Suisse has trimmed its target price for FTSE 250 travel operator Thomas Cook Group PLC (LON:TCG) to 140p from 158p, but has maintained a significant upside to the current share price based on the attractiveness of the firm’s long haul flights.
Analysts at the bank said while the mark to market had resulted in the target price cut, Thomas Cook’s long-haul network remained attractive, citing its “compelling competitive position” with 87% of its long-haul seats operating on routes with one or zero competitors.
READ: Thomas Cook issues profit warning as competitive Spanish holiday market hurts margins
However, the bank highlighted that this position could be undermined by the scope for competition from low-cost carriers, and therefore raised the rationale for either a partnership with an airline such as easyJet PLC (LON:EZJ), or further restructuring.
Despite this, Credit Suisse’s 140p price target still offered a 79% upside on the last close price of 78p, with analysts reiterating their ‘Outperform’ rating on the stock adding that a more “drastic” restructuring of the airline could unlock material value.
The bank also said that the limited capital expenditure needs of the group’s tour operator arm were currently “underappreciated”.
The forecast may provide some relief to Thomas Cook, who issued a profit warning at the end of July as tough competition for Spanish holidays piled pressure on its margins in the third quarter, with growth in higher margin destinations like Turkey and Egypt failing to make up the difference.
In mid-morning trading Tuesday, Thomas Cook shares were down 1.8% at 76.5p.