Ryanair enjoying blue skies

Ryanair continues its transformation, helped along by falling oil prices.

A Ryanair plane
Source: Bloomberg

On Monday 2 February Ryanair will post its third-quarter figures. The adjusted earnings per share are expected to fall from €0.432 to €0.013, along with sales which are forecast to drop from €2.042 billion down to €1.053 billion. The company’s pretax profits are set to fall from €683.9 million down to just €37.85 million.

Institutional sentiment towards Ryanair is strong, with 21 companies rating the airliner as a buy, four as a hold and only three rating it a sell. The average price target over the next 12 months is €10.80, offering only a small upside from the current price of €10.40.

In November last year, Ryanair increased its full-year profit target for the second time in the year as the company’s transformation continued to convert previously skeptical travelers.

The Irish airline has had three major issues contributing to its success over the financial year. Firstly, the price of oil has collapsed by more than 50% in the last nine months, and unfortunately the airline has been roughly 90% hedged but it will have still seen costs fall on the commodities price squeeze. Secondly, some of its European competitors have dropped the ball. Air France-KLM continues to damage its own reputation as a series of strikes last summer disrupted its service, and Deutsche Lufthansa has suffered from similar staffing problems.

The first two are out of the company’s control; however, the changing perception of the company by the travelling public – and more importantly the business travelers – has been noticeable. Considering the ruthless manner in which the company had previously treated travelers this turnaround has caught many by surprise. It appears that a fast, cheap and reliable service will see many turn a blind eye to the past.

Two upward revisions in annual profit expectations, competitors shooting themselves in the foot and the oil price continuing to look weak should ensure that the bullish trend in this stock remains in place. A pullback would offer a more attractive entry but that might not materialise.

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