EasyJet PLC (LON:EZJ) shares are not likely to fly much higher, analysts at Berenberg said as they downgraded their recommendation on the budget carrier.
Restrained growth plans from rival airlines, aircraft delivery delays and the exit of Thomas Cook from the market are all expected by Berenberg to help easyJet generate a 5% rise in revenue per seat.
In fact, October fare-scrape data points to advertising fares having increased year-on-year, reversing three straight quarters of declines.
However, the analysts said the market has already factored all this into easyJet’s shares, so if demand softens there is “less of a buffer” in the price.
As a result, the bank’s rating on the shares was cut to ‘hold’ from ‘buy’ even thought its target price was lifted to 1,410p from 1,260p.
“We now consider risks as more balanced into 2020, with shares that fairly value easyJet’s momentum,” analysts said in the note.
One factor that could move the dial for Berenberg in future is easyJet's cautious rollout of its new Holidays division, which has not yet been added to the bank's forecast model as additional details are still awaited.
The analysts’ preferred European sector stock is International Consolidated Airlines Group SA (LON:IAG) or across the Atlantic the top pick is Delta Air Lines (NYSE:DAL), saying “company-specific overhangs and cyclical fears offer better entry points” into the shares of companies offering higher return on invested capital.