Ryanair Holdings PLC (LON:RYA) shares jumped in lunchtime trading Monday after HSBC upgraded the airline to ‘buy’ from ‘reduce’ as analysts said the major issues facing the carrier had now been priced into the stock.
In a note to clients, the bank said it was making the judgment that investor sentiment towards Ryanair was now “close to finding a trough” and that the industry environment was set to improve.
READ: Ryanair descends after profit warning as lower winter fares offset rise in traffic
The main issues facing the carrier, including industrial relations, Brexit, and a downturn in unit revenues, were now “quite well understood” by investors, HSBC said, and as such were priced into the stock which has dropped 36% over the last year.
However, analysts added that they expected revenue trends to improve over the summer months, with the capacity growth in the recent winter period facing an “unusual” comparative due to the failure of the Air Berlin and Monarch toward the end of 2017 where their capacity had not been backfilled.
HSBC also reduced its estimates for the 2019 financial year to reflect the lower guidance issued in a profit warning last week by the airline but raised their forecast revenue trajectory thereafter due to moderating growth in capacity.
Ryanair cut its full-year profit guidance last Friday in its second profit warning in four months as lower fares for the winter period offset a rise in traffic numbers.
HSBC also upped its target price to €11.50 from €10.50, although still retained Brexit uncertainty and industrial relations as key risks to the stock.
Ryanair shares were up 3.5% at 10.5p.