RBC upgrades easyJet to 'outperform' citing good entry point

It said the drop in the shares – which are down 16% versus the FTSE 100 year-to-date – is a good entry point.

“We now see a window opening in easyJet shares for more farsighted investors to exploit,” RBC said.

Following the share price decline, the bank now sees 12-13% total return potential. RBC upped the price target as it sees a growing probability the company will move to tackle its cost inflation problems.

In addition, RBC said balance sheet capital efficiency changes were also possible in future, but with easyJet’s marginal cost of debt there is modest short-term upside from these.

“As sell-side consensus estimates start to fall, we see recent price target cuts signaling the start of capitulation on the shares as enhancing the coming opportunity to buy, even if the short-term investors might need to stomach adverse EPS momentum and a risk to summer profit outlook.”

More broadly, RBC said that in the short term, its concerns about oversupply in the airline segment remain.

At 0920 BST, EasyJet shares were up 2.8% to 1,455p.

The report came after analysis from Numis released at the weekend, in which researchers predicted the airline will swing to a half-year loss this week after terror attacks in France, Egypt and Belgium.

It estimated the attacks in Paris and Sharm el-Sheikh will have cost the airline £45m in lost revenues in the first-quarter, with the Brussels attacks in March costing a further £35m.

"Though Brussels accounts for only about 1 per cent of easyJet’s capacity, we believe the bombings are likely to have a knock-on impact on short-haul, city-to-city travel and on customer confidence," said Numis analyst Wyn Ellis.