easyJet (LSE: EZJ) shares have been through plenty of turbulence of late. With its operations halted by the Covid-19 pandemic, the business now faces the struggles of a cost-of-living crisis fuelled by racing inflation.

As a result, the easyJet share price has been pegged back by nearly 40% this year. In fact, over the last five years, the stock has plummeted 65%.

So, with the release of its Q3 trading update yesterday, is now the time to buy?

easyJet performance

The tough times the business has been encountering were reflected yesterday in its trading update. For the three months to 30 June, easyJet saw headline losses of £114m.

The main attributor to this was the recent disruptions and cancellations seen across airports of late, as this made up a £133m hit for the business.

The losses seen are significantly better than the £318m for the same period last year. But with passenger numbers jumping more than seven times during this time, to 22m, this shows the effect airport turmoil is having on easyJet.

However, it’s not all bad news. The increase in passengers equated to 87% of FY19 capacity, showing that the sector is slowly but surely recovering back to pre-pandemic levels. easyJet also said its load factors were on the up, peaking at 92% in June.

Looking forward, it also stated that Q4 is currently 71% booked, while sold ticket yield for the period is 13% above FY19.

Is it time to buy?

Despite headwinds, easyJet seems to be edging somewhat closer to its pre-pandemic capabilities. So, is it time to buy some shares?

One area where the business may suffer is rising fuel costs. It has some level of protection as it has hedged part of its supplies up until the end of FY23. However, with the sad war in Ukraine pushing up oil prices, I can still see rising costs having a substantial impact on easyJet’s margins.

It also alluded to how it has “taken action to build the additional resilience needed this summer” as staff shortages have seen operations impacted. How this plays out for the rest of the year is unknown. We’re still seeing delays and cancellations at hubs. And should this drag on later into 2022, this could drive down the easyJet share price.

The cost-of-living crisis may also see demand slow. With inflation set to continue to rise, consumers may be deterred from booking trips away. The crisis has also led to calls from easyJet staff for higher wages.

With all this said, I like the smart moves the business is making for the times ahead. It recently announced an agreement to purchase 56 Airbus A320neo aircraft between FY26 and FY29. And on top of this, it’s also tweaked previous orders to newer, more fuel-efficient aircraft. This is a smart play.

However, I still won’t be buying shares today. The stock has taken a beating this year, but I’m not sure if it’s done yet.

Should its price slip further, I’d be tempted to buy. For now, I’ll be holding off.

The post Is now the time to buy easyJet shares? appeared first on The Twelfth Magpie.

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Charlie Keough 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.

The engine room

Rolls-Royce’s civil aerospace division is its main revenue driver. The segment generated 41% of revenue in 2021. Of that revenue, 72% is attributed to large engines. It’s also worth noting that while Rolls-Royce generates a huge sum of revenue from engine deliveries, its value proposition comes from the aftermarket. This means it stands to earn more from servicing the engines it delivers. As such, higher flying hours mean more servicing, which results in higher service revenue.

Thankfully for Rolls-Royce, there are plenty of tailwinds as travel demand picks back up. For one, flying hours are forecasted to increase in the medium term. Secondly, freight is anticipated to fly the most hours compared to business aviation and large passenger jets. Therefore, the FTSE 100 firm is expecting more shop visits. Not to forget, the incoming freighter version of the A350, of which Rolls-Royce has a 100% market share, will benefit from this tailwind.

Neo worries

Management didn’t address worries surrounding the cancellation of a chunk of Airbus A330neo orders, but I still remain optimistic. Based on the table below, Rolls-Royce stands to gain a lot more revenue from servicing engines than delivering them.

Management mentioned its goal to service over 7,000 engines by 2030, a 30% uptick from the current number. The Airbus A330’s Trent 700 engine is Rolls-Royce’s most profitable engine. On the conference call, the board mentioned that the Trent 700 still has 40% of its flying hours ahead due to its low average age. With more service extensions and engine demand as well, more service revenue is to be expected in the future.

Things are looking up

It’s no secret that Rolls-Royce’s financials are a nightmare. The British firm has negative shareholders’ equity with staggering amounts of debt. Nonetheless, I have reason to believe that things are looking up. At the investor day presentation, CFO Arvind Balan guided the firm’s civil aerospace division to breakeven this year. This is in line with Rolls-Royce’s wider outlook when it released its Q1 trading update.

Additionally, the London-based firm is seeing higher operating margins. This is down to investments in digitalisation and a leaner production system which includes reuse of parts, as well as a reduction in overheads and R&D costs. Consequently, Rolls-Royce expects free cash flow to comfortably exceed operating profit. From this, I expect the company to be able to start paying off its debt in 2024.

Nevertheless, I am wary of the economic headwinds which could hit flying hours, and as a consequence, Rolls-Royce’s top line. That being said, management reiterated that economic headwinds have been accounted for in their projections. That being the case, I am closely watching Rolls-Royce, and may potentially buy shares once it’s able to settle its debt.

The post The Rolls-Royce Share price may be set for take-off! appeared first on The Twelfth Magpie.

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• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
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John Choong has no position in any of the shares mentioned at the time of writing. 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.

Engine shutdown

When Rolls-Royce released guidance for FY22, many investors were upbeat about it. The engine manufacturer said it expects to generate positive free cash flow for the year ahead. This was seen as good news considering that it has been years since this feat was last achieved. Not to mention, the introduction of the Airbus A350 freighter, which also provides tailwinds. As a result Rolls-Royce’s Trent XWB engines are expected to see an increase in production. Nonetheless, the share price still remains at underwhelming levels. So, why’s that?

Well, one of the biggest reasons that the Rolls-Royce share price has traded sideways is down to the cancellation of 63 Airbus A330-900s. The A330neo’s engines make up a bulk of Rolls-Royce’s engines on order. Consequently, this cuts the number of Trent 7000 engines on order in half. This isn’t helped by the news that an increasing number of airlines may start grounding their A350s as well, due to surface degradation issues. The results of such a grounding could resort to a bigger hit in revenue from Rolls-Royce’s biggest income stream. Therefore, the previous tailwinds have now shifted, because Rolls-Royce now has a fresh set of problems to deal with.

Staying in economy class

Piling on to Rolls-Royce’s misery, analysts from both Morgan Stanley and JP Morgan seem uncertain about the stock. Although Citigroup and Berenberg rate the stock a buy, Deutsche Bank shares the bearish sentiment, reducing their price target of the stock to £1.10. Analysts at JP Morgan cited scepticism towards Rolls-Royce’s future growth plans. The investment bank is not too optimistic about the new markets division at Rolls-Royce. This segment of the business is supposedly meant to build small nuclear reactors and electrical power for small aircraft. Nevertheless, analysts do not believe it will be able to generate a healthy margin of income and bring the share price up in the long-term future. This, paired with a slowing economy, indicates to me that Rolls-Royce is most likely going to face a tough time for the foreseeable future.

Silver lining

There is a silver lining to the strong headwinds, however. Despite Rolls-Royce’s atrocious balance sheet and high level of debt, the company doesn’t have any debt maturities to pay before 2024. This should buy the manufacturer some time to generate some free cash flow. In spite of that though, I do remain sceptical of the business’s prospects for the near-to-medium term, however. With the engine cancellations continuing, the new markets segment a long way from profitability, and stagflation possibly kicking in, I don’t think the Rolls-Royce share price will be going up any time soon. As such, I will not be buying shares for my portfolio.

The post Here’s why the Rolls-Royce share price is down 25% appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

John Choong has no position in any of the shares mentioned at the time of writing. 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.

Sales at the company’s Land Systems division have slumped in recent times thanks to difficulties in the agricultural and construction markets. Organic sales fell 8% between January and September, but this isn’t GKN’s only problem, the firm warning last month that “military aerospace programmes and agricultural equipment markets look set to continue their decline.”

Indeed, GKN’s Aerospace arm has also been beset by falling military plane sales as mature defence programmes have expired.

Having said that, I believe that the long-term outlook for its aeroplane division remains extremely rosy as both Airbus and Boeing ramp up aircraft construction. Meanwhile, the acquisition of Fokker in 2015 has significantly bolstered GKN’s position in the electrical wiring and aerostructures sub-segments, providing its sales outlook with an additional shot in the arm.

But this isn’t the engineer’s only hot growth channel — indeed, sales at the firm’s Driveline division continue to outstrip the wider market. And the top line should keep on rising as global car demand heads higher.

Scotiabank advised late last month that global car sales continued to climb in September, a 10% year-on-year rise representing the fastest rate of growth for three years.  The bank also reported that sales in China surged 32% last month as buyers rushed to secure their vehicles before sales tax reductions expired. But this wasn’t the only story — 11 countries reported double-digit rises in September, Scotiabank noted.

Against this backcloth, the City expects earnings at GKN to get back on the front foot from this year, and growth of 2% and 12% is currently predicted for 2016 and 2017 respectively.

And although GKN recently galloped to 16-month tops in October, the firm is still attractively valued in my opinion — P/E ratings of 10.8 times for this year and 9.6 times for 2017 fall well below the FTSE 100 average of 15 times.

Given GKN’s role as a critical parts provider to major aerospace and automotive OEMs, and subsequent potential to generate stunning revenues growth, I reckon GKN is a snip at these prices.

Drugs dynamo

It could be argued that the unpredictable nature of drugs development makes the likes of GlaxoSmithKline (LSE: GSK) a dicier pick for those seeking reliable earnings growth.

However, the Brentford company has a better record than many of its peers when it comes to getting product to market. And the vast sums GlaxoSmithKline has thrown at improving its product pipeline, through both organic investment and M&A activity, is clearly paying off — new product sales clocked in at a staggering £1.21bn during the third quarter.

The number crunchers expect GlaxoSmithKline’s next generation of sales drivers to generate bottom-line expansion of 31% in 2016, putting to bed four successive years of declines. And an additional 9% advance is anticipated for next year.

These figures create P/E ratios of just 15.9 times and 14.4 times, stellar value in my opinion given GlaxoSmithKline’s enormous global wingspan and broad suite of market-leading drugs. I believe that, like GKN, the pharma star is phenomenal value at current levels.

The post These stocks are the FTSE’s true growth greats appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK owns shares of GKN. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.