JPMorgan upgrades Ryanair, reiterates 'overweight' on Wizz

JPMorgan Cazenove upgraded its stance on shares of Ryanair on Monday, arguing that the budget airline is a long-term winner in European aviation with its "fortress balance sheet" and ultra-low costs.

JPM, which lifted Ryanair to ‘overweight’ from ‘neutral’ but cut the price target to €15.30 from €16.75, also reiterated its ‘overweight’ stance on Wizz Air. It said that with Covid-19 infection rates falling in the major European countries and airlines returning capacity to service, airline stocks have meaningfully bounced from their April lows.

"However, significant risks remain: a potential return of Covid-19 across Europe, with unpredictable government responses; the likelihood of large losses in the winter season; and a weakened European economy.

"Against this backdrop, we see RYA and Wizz as the most attractive European airlines. Both have strong balance sheets, can grow through expansion and market share gains, and will use the current crisis to cut costs."

JPMorgan cut its price target on Wizz to 4,150p from 4,700p.

It said Ryanair is likely to use the current crisis to negotiate better terms from airports and, potentially, to place a major new order with Boeing at a very attractive price.

JPM slashed its price target on neutral-rated easyJet to 760p from 1,620p. It said the airline entered the pandemic with weaker liquidity and lower margins than RYA and Wizz.

If EZJ can succeed in meaningfully reducing its costs this should lay the foundation for better future profits, it said. "However, the mid-point of EZJ's new fleet plan suggests that in YE Sep 2023 it will have 9% fewer planes than in YE Sep 19A; we believe this lack of medium-term growth makes the equity story less attractive than that of RYA and Wizz."