Stock of the Week: easyJet

VIDEO: Key holiday season is going to be a nerve-wracking one for budget airlines

James Gard 25 July, 2022 | 8:59AM
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James Gard: Welcome to Morningstar. Summer holidays have officially started. So, our stock of the week is easyJet. The airline is just about to release a third quarter update, and it will tell investors how it thinks the key holiday season is about to go. In this respect, it's already started manage down expectations.

It's been a busy few weeks for the airline because it's just bought 56 new Airbus jets, a controversial deal that has been in the pipeline for many years. These new planes should be cheaper to run and produce fewer emissions and pack in more passengers. This summer is going to be a testing one for travellers and airlines. Flights are being cancelled, baggage is going missing, and there are staff shortages in the air and on the ground. School’s out, and the industry is bracing itself for a barrage of bad press. See if you can count how many times you hear the words travel chaos in the coming week.

You could argue that all these risks are priced into easyJet shares, which are off nearly 40% this year and are still way below pre-pandemic levels. Other travel stocks like IAG have fared just as badly too. Morningstar Analyst, Joachim Kotze, says easyJet shares are significantly undervalued at just below £4, with a fair value of £9.15. Looking beyond this summer, easyJet is well-capitalized and its balance sheet is well-positioned to absorb limited short-term shocks, he says.

For Morningstar, I'm James Gard.

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James Gard  is senior editor for Morningstar.co.uk