EasyJet flies lower on Cantor downgrade

Budget airline easyJet flew lower on Monday as Cantor Fitzgerald downgraded its stance on the stock to ‘hold’ from ‘buy’ saying it reckons the shares will trade in a fairly tight range for the next quarter.

The brokerage said EZJ reported a “generally upbeat” first quarter last week but also warned that rising fuel costs, the continuing impact of a weak pound and capacity growth in the market would crimp profitability.

To be prudent, Cantor cut its pre-tax profit forecast for full-year 2017 by 16% to £362m.

“We remain cautious on the outlook for unit revenues despite hints of some improvement from EZJ. Capacity build by EZJ and rival carriers, particularly on sunshine routes, is likely to continue to act as a drag on yields. Moreover, Easter moving into EZJ’s second half period, lowers near term visibility on earnings. The AGM in early February could be noisy with the main owner opposing fleet expansion, but we think it is unlikely that these plans will be shelved.”

Cantor noted forward bookings are slightly up on last year but said that capacity growth in the market, and the dampening effect this has on unit revenues, is unlikely to abate before the summer.

Still, Cantor said the stock’s valuation remains fairly attractive, trading on a calendar 2017e price-to-earnings of 11.4x versus a five-year average of 12.7x or a 10% discount. Its forecast dividend yield is 3.7%.

At 0920 GMT, the shares were down 1.4% to 960p.