Since the start of the pandemic, the easyJet (LSE: EZJ) share price has been far from flying. But at 558p a share at the time of writing, buying this FTSE 250 stock as a long-term investment is a no brainer to me.
It’s no secret that since early 2020, airline stocks have been one of the worst performing amongst all sectors, and with a share price of 1506p in January 2020 — almost three times higher than it is now — easyJet is no exception.
Nonetheless, easyJet is recovering slowly but surely. Its Q4 capacity is up to 60% of 2019 levels, up from 17% in Q3 2021 and these levels are far higher than peers such as IAG, which saw 45% capacity, and Lufthansa at 40%.
easyJet also has some strong fundamentals. which in the current climate are boastful. It has significantly reduced total cash burn and its fixed costs, which averaged £34m during Q3, far lower than the £40m it had projected at the start of the year. Its debt is also one of the lowest amongst its peers at £1bn, which is predominately due to its £1.2bn rights issue in September.
It’s not just about fundamentals, though, as easyJet has a strong brand presence amongst investors and passengers alike. Its recent rejection of a takeover from low-cost Hungarian operator Wizz Air is just one example of this.
Certainly, the low-cost airline sector will need consolidating in coming years but with easyJet eyeing up British Airways’ slot at Gatwick airport, and CEO Johan Lundgren calling the post-coronavirus aviation market a “once in a lifetime opportunity”, I believe easyJet poses a real threat to rivals.
The experts also agree with this take on easyJet as the company’s shares have a consensus buy rating, with the average price target providing an upside of over 30%. This is far higher than peers such as Wizz Air, which only has a 7% upside to the share price, and Ryanair with a 12% upside. This is without mentioning Lufthansa, which has a sell rating attached to its name with an average price target of 6% below current market price.
However, for easyjet’s share price to regain momentum, it will have to work hard to prove itself in an ever increasingly competitive industry. Although the rights issue in September funded the company’s balance sheet, it also sheds light on how challenging the pandemic has been for them. All eyes will be on how easyJet uses this extra capital to maintain its leading position in the market and any further rights issues may put a huge strain on the share price.
Will easyJet recover overnight? Probably not. But as a long-term investor looking to profit from an industry that will only continue to recover in coming years, and a company with a strong brand, fundamentals and vision, easyJet is a strong buy for my portfolio.
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Yasmin Rufo has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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