BofA Merrill Lynch ups easyJet to ‘buy’ on European capacity constraints

Bank of America Merrill Lynch upgraded easyJet on Thursday to ‘buy’ from ‘underperform’ and lifted the price target to 640p from 470p on European capacity constraints.

The bank said it sees growth benefiting from capacity constraints in Europe, a bigger contribution from the holidays segment and stable ex-fuel unit costs.

BofA lifted its FY24 pre-tax profit estimate by 14% to £549m, which is 3% below consensus, as it models 1 percentage point higher year-on-year load factors in FY24E and for cost per seat to remain flat.

The price target change comes as the bank moves its valuation to a target price-to-earnings multiple of 11x, applied to its higher earnings estimates.

"We move back to a PE methodology as easyJet’s earnings and leverage have improved after the pandemic," it said.

"At 9x FY24E P/E, the shares trade below their 12x historical average, which we think is unjustified, given solid earnings growth prospects and a strong balance sheet."

At 1140 GMT, the shares were up 2.5% at 521.80p.