EasyJet hit by JPMorgan downgrade, Ryanair profit warning

EasyJet shares were under pressure on Friday, knocked lower by a downgrade from JPMorgan Cazenove and a profit warning from rival Ryanair.

In a note on European low-cost airlines, JPM cut its stance on EasyJet to 'neutral' from 'overweight' and chopped the price target to 1,450p, from 1,800p, as it reiterated its 'overweight' ratings on Ryanair and Wizz Air.

JPM said that based on its historic and expected financial results, it sees EasyJet as a "good" airline, whereas Ryanair and Wizz are "very good".

"EZJ currently trades on a 12-mth forward price-to-earnings of circa 10x, a circa 30% discount to its long-term average of circa 14x.

"If the UK achieves a 'soft Brexit; (which isn’t guaranteed) then we see meaningful medium-term upside for the shares," it said. However, EasyJet's historic valuation discount to Ryanair has largely disappeared and mean reversion is now likely, it added.

JPMorgan slashed its price target for Ryanair to €13.00 from €19.75 and for Wizz to 3,750p from 4,000p.

The bank said it considers all three to be long-term winners in the airline industry, with solid structural growth prospects.

"EZJ and RYA are both trading at a circa 30% discount to their average P/E since 2005; Wizz has less trading history but also looks attractively valued," it said. "Current low valuations reflect multiple investor concerns: a tough winter (too much capacity driving down fares); Europe’s slowing economy; the significant unknowns surrounding Brexit; and specific issues at RYA."

The note coincided with a warning from Ryanair, which said earlier that it now expects full-year profit excluding Lauda of between €1bn and €1.1bn, down from previous guidance of between €1.1bn and €1.2bn, as winter fares fell 7% versus previous guidance of a 2% decline.

The airline also that it could not rule out further cuts to air fares and/or slightly lower full-year guidance, should any unexpected Brexit or security developments impact yields between now and the end of March.

At 1040 GMT, EZJ shares were down 2.8% to 1,136p, Ryanair was 2.3% lower at €9.79 and Wizz was off 1.2% at 2,999.94p.