HSBC upgrades EasyJet price target but warns on visibility
EasyJet is likely to enjoy winter sales above pre-pandemic levels and strong yields through the end of this year and into 2023, in the view of HSBC.
In a note to clients, the bank upgrades the target price for the UK budget carrier's stock to 380p from 310p, noting that at just 83% of 2019 capacity – compared with Ryanair and Wizz, which have surpassed pre-pandemic levels – the airline is well placed to manage its yields.
Strong winter trading at its low-cost peers points to bumper trading at EasyJet, HSBC believes, while leisure traffic is set to be supported by ongoing pent-up demand. "Also, higher energy prices and inflation have increased the cost of living, which means mid- to high-end leisure traffic could potentially trade down to LCCs," writes HSBC.
The bank adds that EasyJet's 'fortress strategy' of developing large market shares at leading airports with high barriers to entry places is defensive, despite rising competition at its key hubs of London Gatwick, Milan and Luton, where Ryanair and Wizz are expanding. "So a key question is how [EasyJet] will protect its strategic position."
The carrier's "asset-light growth model" and balance-sheet positioning are also listed as positives.
On the negative side, HSBC warns that cost pressures could "overwhelm" results, driven by higher inflation and the soft pound. City-break travel is also at risk from weak macroeconomic trends, as customers prioritise longer leisure trips.
"We believe pent-up demand could underpin growth and average fares could be better in FY23e (vs FY19), driven by a capacity squeeze. However, visibility remains low currently," writes HSBC. It maintains its 'Hold' rating on the stock.
EasyJet is set to publish its full-year results on 29 November, having guided for a loss of £170-190 million ($203-227 million).