Wizz Air Holdings PLC (LON:WIZZ) saw its shares slip on Thursday following a downgrade to ‘neutral’ from ‘buy’ by UBS, which reduced its target price for the budget airline to 3,375p from 3,475p after cutting earnings estimates.
In a note to clients, the Swiss bank's analysts said the changes to forecasts were made after Wizz Air’s third-quarter results to reflect recent moves in capacity and fuel prices.
They pointed out: “While we increase our forecast 2020 average fare (3% to 3.5%), we do not think this will yet offset the recent increase in fuel price. Accordingly, we adjust our numbers, which results in our 2019, 2020 and 2021 EPS falling by 1%, 5% and 6%, respectively. Our forecasts for 2019/2020 EPS are broadly in line with consensus.”
The analysts argued that there was insufficient share-price upside as it cast doubt on the budget airline’s ability to offset recent increases in fuel price.
However, although they downgraded their rating for the Eastern Europe-focused airline, the analysts said they continue to see structural growth for the firm in the next 12 months.
The UBS analysts said: “We think Wizz will see double-digit traffic growth over our forecast period as (1) Wizz is an ultra-low-cost producer with the ability to take market share from the European network carriers, (2) the bulk of Wizz’s network is in higher-than-Western-Europe GDP growth markets and under-penetrated travel markets, (3) fleet deals are in place – it has over 250 planes on order, with the majority A321 Neos, which should see the fleet nearly triple by 2027, and (4) the management team has a proven record of execution."
“However," the analysts added, "with the shares up by nearly 20% since the beginning of the year, we downgrade to Neutral.”
On Tuesday, analysts at French bank Societe Generale downgraded their rating for Wizz Air to 'hold' from 'buy' with a reduced target price of 3,480p, down from 3,550p previously, pointing out that the firm "trades close to its fair value and now marks the high end of airline valuations."
In afternoon trading on Thursday, Wizz Air shares were down 2.5% at 3,220p.