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easyJet share price: what to expect from first-half results

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When does easyJet report earnings?

easyJet reports earnings for the first six months of its financial year on 17 May.

easyJet earnings – what does the City expect?

First-half earnings are expected to be a negative, at -56p per share, while revenue is expected to be £2.3 billion.

Growth downgrades have driven the weakness in easyJet shares, as forecasts have been slashed to see full-year figures hit around 90p per share versus previous forecasts of over 130p per share. Brexit and economic uncertainty continue to weigh on the airline, as the UK economy faces major challenges arising from the decision to leave the European Union. Consumers are fretting that they will find it more expensive to fly abroad, or that a sudden rupture of relations could leave them stranded over the other side of the Channel.

These fears are undoubtedly overblown, but they have encouraged holidaymakers to find other destinations outside of Europe, including ones not served by easyJet, and in addition to consider staying in the UK. Such decisions hit easyJet’s performance, and crucially are unlikely to change in the near term.

The UK and EU have agreed that flights will continue in the event of a no-deal Brexit, so perhaps these fears are overblown, but consumers have yet to return in the numbers easyJet needs to turn the current performance around. easyJet has also had to cope with strikes across Europe that have hurt scheduling and damaged trading overall. Another summer of disruption seems likely. At around ten times forward earnings, the shares are well below their five-year average of 11.7, although they have risen from the low level of late 2018, at around 9 times forward earnings.

A possible bid from a rival seems unlikely. The European industry is much more fragmented than its US counterpart, but a bid from a larger flag carrier would carry competition issues, given the strength of certain airlines in particular cities. Regulators would be concerned that consumers will face less choice, making a potential tie-up an unlikely prospect.

How to trade easyJet’s first-half results

easyJet has steadily declined since the June 2018 peak, but since October the share price has found support three times at £10. Volatility in the shares spiked to 50p for the 14-day average true range (ATR) in late November, but since then has settled back to around 36p, though we have witnessed two spikes during April to over 40p.

Having underperformed the broader market since the end of December, the shares may well be one to monitor in the event of a broader market correction. Year-to-date, the price is up just 0.3%, versus a 8.5% rally for the FTSE 100. On a one-year view, the price is down nearly 35%, versus a 5% fall for the FTSE 100.

The average move on results day is 5.4%, but current options pricing from Bloomberg suggests that a move of 6% is to be expected. easyJet has missed earnings forecasts in eight of its last reports and has missed revenue expectations in six of the last eight reports.

Of the 28 analysts currently covering the shares, ten have ‘buy’ recommendations, while 17 have ‘hold’ ratings, with one ‘sell’. The median target price is £11.66, a premium of around 10% to the current price (as of 8 May).

easyJet share price – technical analysis

As noted above, £10.00 has proved to be significant support since October. Each time the share price has hit this level, it has rallied sharply, although it should be noted that these rallies have not been sustainable. Gains above £12.00 have proven hard to sustain since October, although the January to March bounce saw it briefly take out the £12.50 level. However, since March we have seen lower highs, with £12.00 once again coming into play as resistance. The 200-day simple moving average (SMA) continues to slope downwards, a useful indicator of the medium-term trend.

The current pullback has seen the price head back towards £10.00. If this holds as support then a rebound back towards £12.00 may develop, but both this and £13.00 will act as resistance. The next targets to the downside are £9.50, £8.74 and £8.10.

easyJet price chart
easyJet price chart

easyJet still searching for some good news

A 40% decline from the highs of a year ago is not easily reversed. easyJet has yet to find the catalyst needed to end the decline in the share price. A competitive market will make it difficult to raise prices and boost profitability, while further disruption across Europe will hurt performance. While the shares are not expensive, there is little in the way of positive news that can prompt a return of investor confidence. The shares continue to hold £10 as support, but if this is lost then bearish momentum will take control.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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