BofA Merrill Lynch downgrades easyJet to 'neutral'

Bank of America Merrill Lynch downgraded low-cost carrier easyJet to ‘neutral’ from ‘buy’ and cut the price target to 1,050p from 1,300p given the increasing lack of visibility on pricing.

Merrill reckoned the shares have limited upside potential until there is capacity constraint and/or yield momentum stability.

It said the company’s fourth-quarter trading update on Thursday indicated that consensus full-year pre-tax profit needed to fall by around 20%. BofA’s own forecasts dropped to £400m from £575m, driven by lower pricing and slightly higher costs.

On Thursday, easyJet warned that profits for the year would be hit by the weakening of the pound.

The company said foreign exchange movements are expected to have around a £90m adverse impact compared to the final year to 30 September, which is an increase of £35m since 23 June.

Merrill said: “The company has a relatively strong balance sheet, a business-oriented airport exposure (which is poised to take share over the legacy carriers in the long-term) and a well-respected CEO at its helm.

“However with a lack of pricing momentum, alongside the uncertainties facing the UK (both growth and FX; leading to management not providing typical pricing guidance) and a lack of tangible cost savings in FY17, it is hard to see how easyJet will regain its (much-needed) earnings momentum in the near-term.”

At 0834 BST, the shares were down 3.3% to 902.50p.