Airline stocks were hit hard in 2020 with the onset of the Covid-19 pandemic. As flights ground to a halt, companies found themselves with no customers while still having to shell out millions each month in maintenance costs. The result of this was negative cash flows, growing debts, and crashing stock prices.

However, fast forward to 2022, and much of the lost flying time has been recouped. As people are free to travel again, I would expect airline stocks to be slowly climbing. Yet this hasn’t been the case. easyJet (LSE: EZJ), IAG (LSE: IAG), and Ryanair (NASDAQ: RYAA.Y) are down 40%, 33%, and 32% year to date respectively. Over a one-year span, the same stocks are down 49%, 35%, and 33%. So that being said, is now the time to buy back in?

Ready for take-off?

A big positive for airline stocks is the continuing increase in footfall. In 2019, just under 5bn people boarded flights. In 2020, this number fell all the way down to 1.8bn. However, in 2022, it’s forecast that just under 3.5bn customers will board flights, highlighting the impressive recovery. As this figure increases, it will help boost firms’ top lines, which I expect to be reflected in share prices.

Looking at company-specific results, I also see good news. IAG reported a profit for the three months to June 30 for the first time in two years. Ryanair posted a profit of £170m in its Q1 FY23 results too. Although easyJet recorded a loss of £110m for the same period, its revenues soared to £1.7bn, up from just £213m a year prior. In addition to this, its net debts shrank to just £200m, down from £600m in March 2022. These figures suggest to me the airline industry is in a more comfortable spot.

Not out of the woods yet

But there remain risks. A big threat that could continue to plague airlines is rising fuel costs. The Russia-Ukraine crisis sent the price of oil skyrocketing to over $120 per barrel. Currently sitting around the $100 mark, the price of jet fuel will inevitably have skyrocketed too, increasing operating costs and eating away at margins.

Another risk that airlines must overcome is rising inflation and how this is impacting workers’ wages. We’ve already been seeing union action regarding the erosion of pay in other travel industries. easyJet, Ryanair, and British Airways have all seen strikes this summer, and there’s no guarantee that these won’t continue.

Rising interest rates are also creating a harsh environment for stocks to thrive. I expect this bearish sentiment to be another reason why airline stocks have fallen.

Flying under the radar

Yet I think that airline stocks are back on the up. Shares have fallen due to rising fuel costs, the threat of industrial action, and the wider macroeconomy. However, with flight numbers rising, and industry leaders returning to profitability, I think now could be time to buy back in. As such, I’m looking at buying some UK airline stocks for my portfolio today.

The post Airline stocks: is now the time to buy back in? appeared first on The Twelfth Magpie.

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• easyJet shares are up 40% in a month. Here’s why
• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?

Dylan Hood 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 airlines have been hit particularly hard, with British Airways owner IAG down more than 16%, at time of writing. Ryanair is down 10% and easyJet down by 13%. Aircraft engine maker Rolls-Royce has fallen 5.5%, as fears grow over international travel.

FTSE 100 energy giants BP and Shell are also down around 5% or 6%, as any Covid resurgence could hit demand for oil.

Who’s afraid of a stock market crash?

Judging by the sectors hit today, it’s beginning to feel a lot like March 2020. As well as FTSE 100 travel and energy stocks, entertainment enterprises are in the mire. Cineworld, Mitchells & Butlers and Restaurant Group are firmly out of favour. Online grocery delivery specialist Ocado Group is bucking the trend by climbing.

As Hargreaves Lansdown markets analyst Susannah Streeter has noted, scientists are calling the mutations “horrific” and of “great concern”. Their dire warnings have triggered a sell off in Asia, where Japan’s Nikkei and Hong Kong’s Hang Seng both fell by 2.6%, while in Europe, the DAX, CAC 40, and Euro STOXX 100 are all tumbling.

I have cautiously backed both BP and Shell in recent days, but lacked the courage to buy airline stocks which look too exposed to pandemic uncertainties. That is one reason why I am relatively sanguine about today’s events (at least from an investment perspective). It’s not the most important one, though. As ever in the middle of a stock market crash, the idea of selling any of my shares or funds simply doesn’t occur to me.

I’ll buy FTSE shares once they get cheaper

I’m still more than a dozen years away from retirement, and that gives my portfolio plenty of time to recover from the current setback. With luck, today’s Covid fears will have been overdone. Even if they’re not, it’s impossible to assess the impact on stock markets. There are just too many variables, including how central bankers will respond.

If the stock market crash does lead to a more protracted slump, further stimulus could be forthcoming, bolstering shares. Investors have been quietly making that bet for years. The US Federal Reserve has effectively been backstopping share prices since the financial crisis.

My wider point is that nobody knows where stock markets will go next. They could crash further. If they do, I still won’t sell. Instead, I would take the opportunity to pick up my favourite FTSE stocks or funds at a reduced price.

History shows that stock markets always recover after a crash, if you give them long enough. In my opinion, they remain the best way to generate long-term dividend income and capital growth for my retirement. Today’s grim news won’t change that.

The post Stock market crash: I’m still buying FTSE shares despite ‘horrific’ new Covid warnings appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. 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.

IAG share price valuation

The IAG share price is currently sitting at 155p. It’s currently trading off of a price-to-sales (P/S) ratio of 1.63. This is significantly lower than competitors easyJet and Ryanair, who trade off P/S ratios of 4.15 and 9.54 respectively. This shows me that IAG stock may be undervalued at current prices.

A slightly worrying point is that the firm’s enterprise value (EV) has actually increased since before the pandemic. EV is calculated by adding together the firm’s market cap and net debt, showing how much someone would theoretically have to pay to buy the business outright. At the end of 2019, IAG’s enterprise value was about £16.5bn. Today it is just below £20bn. This signals the business is valued a lot higher than in 2019, even though flight numbers and revenues have decreased.

However, this does not worry me. The main reason this number has increased is because IAG added £3.8bn of debt to its balance sheet during the pandemic. This was a theme across most of the aviation industry, with easyJet also forced to take a £1.4bn debt package. TUI followed a similar path, finishing 2020 with over £6.5bn in net debt. The fact that all of these firms will have seen significant jumps in EV makes me believe that the IAG share price may still offer good value at current levels.

Pushing higher

IAG’s half-year results did show some encouraging numbers. Q2 passenger capacity was only 21% of 2019 levels, but this is expected to rise to 45% for Q3. In addition to this, IAG has a strong cash position of £8.5bn. Both of these numbers point towards a rising IAG share price in the near future.

However, many analysts have stated they don’t believe the aviation industry will fully recover until 2024. Many countries like the US, Australia, and New Zealand still have strict Covid-19 travel restrictions. As British Airways makes most of its business from long-haul flights, these continued restrictions are likely to stifle future growth. 

Overall, I think the IAG share price offers some good value at current levels. However, this doesn’t mean there is not further to fall. In a few years, I think we could see a good recovery and the IAG share price will be significantly higher than where it is now. In the short term though, I am not convinced this is a buying opportunity.

The post The IAG share price is falling: should I buy in now? appeared first on The Twelfth Magpie.

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Dylan Hood 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.

Is this a once-in-a-lifetime opportunity to grab shares in this and other battered airlines on the cheap? Or should Foolish investors steer clear? For now, I think the latter. 

Ryanair dives

We knew the figures wouldn’t be pretty but it would seem many in the market are shocked at just how bad they are. 

Today, Ryanair reported a Q1 loss of €185m. Contrast this with the €243m net profit achieved over the same period last year and you get an inkling of just how hard the coronavirus has hit the FTSE 250 stock and its peers. Indeed, the company reflected that the three months to June has been “the most challenging” in its 35-year history. 

No hyperbole here. As a result of lockdowns and travel bans, the number of passengers flying with the company between mid-March and the end of June dived to just 500,000. In the previous year, it was 41.9m. And while Ryanair was able to reduce costs by 85% over the period, this wasn’t enough to offset the 95% dive in revenue to €125m.

As company updates go, you’d struggle to find one as bleak as this. Perhaps the only chink of light was that Ryanair expects to have operated roughly 40% of its normal schedule in July. This will rise to 60% or so in August and “hopefully” 70% in September. It also expects to clear 90% of customer refunds relating to cancelled flights by the end of July. 

Murky outlook

Ryanair’s shares were down 7% this morning. As bad as this may sound for holders, it wasn’t as awful as the falls sustained by listed peers easyJet and Jet2 owner Dart Group. As I type, their share prices have both tumbled 13%.

Since the outlook for Ryanair and, indeed, all airlines is so uncertain, I’m not expecting things to bounce back soon. As the former reflected today, it’s “impossible” to know for how long the coronavirus will be with us and whether a second wave may coincide with the arrival of the annual flu season.

Although it predicts a smaller loss in Q2, Ryanair went on to say it couldn’t provide any guidance on full-year earnings. It did, however, forecast that traffic would drop 60% to just 60m people and that the need for airlines to cut capacity would impact air travel for “at least the next 2 or 3 years.“

Still too risky

Based on today’s news and market reaction, I’ll continue to steer well clear of airlines for a while. The risk/reward payoff simply isn’t worth the trouble in my opinion, even if some UK listed airlines (such as Ryanair) possess relatively solid balance sheets. The Dublin-based business may emerge stronger by growing its network and fleet. But the suggestion it’ll suddenly race ahead of competitors benefitting from financial aid packages from governments is optimistic. 

If negotiating the coronavirus wasn’t bad enough, airlines must also contend with the elephant in the room that’s Brexit. A no-deal scenario could mean even more turbulence for the already-battered industry.

A once-in-a-lifetime opportunity? Not as I see it.

The post The Ryanair share price has tumbled. Is this a once-in-a-lifetime opportunity to buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

Thanks to an increase in capacity, a total of 26.4m people flew with the airline over the three months to the end of June (up by 2m), leading to a 10.7% rise in passenger revenue to £1.39bn. The company’s load factor — the percentage of available seats filled — declined slightly to 91.7%, however, due to high prior-year comparatives resulting from the bankruptcy of Monarch and industrial action in France.

Taking into account the 14.3% rise in ancillary revenue (baggage fees and on-board food and services), total revenue came in at £1.76bn in the three months — 11.4% more than over the same period in 2018.

In addition to higher revenue, easyJet’s focus on “operational resilience” seems to be paying off. Its headline cost per seat, excluding fuel, fell 4% at constant currency following significantly-reduced cancellations and delays. No wonder CEO Johan Lundgren was keen to describe the company’s performance over the period as “robust”. 

With 78% of seats in the second half of its financial year now sold, easyJet predicts headline pre-tax profit for the 12 months will come in between £400m and £440m, in line with market expectations. 

In light of this news and following a bounce in the share price over the last month, does it make sense to question whether an immediate return to the market’s top tier might be on the cards for the business? I think that’s a tough one to call. 

Bothersome Brexit 

The last 12 months have not been fun for easyJet’s investors. Even after today’s gain, the stock is still down 40% from the highs reached in June 2018. Nevertheless, with a market-cap still above £4bn, it won’t take much for the company to flirt with the possibility of re-entering the FTSE 100 sooner rather than later, especially if investors see value in the shares.

Before markets opened this morning, the flyer’s stock was trading on a little over 12 times expected earnings — slightly lower than its five-year average of 13.1. This valuation also compares favourably to listed peers Ryanair (14) and Wizz Air (15).

In addition to its lower valuation, easyJet remains the logical choice for those looking to generate income from their portfolios. A predicted cash return of 43.9p per share in the current financial year, covered almost twice by profits, gives a yield of 4.2%. Neither of its rivals pays dividends.

Taking this on board, along with its strong branding and solid finances, I think easyJet could certainly attract interest from market participants in the event of the new Prime Minister reaching what the airline industry considers an ‘acceptable’ conclusion as far as Brexit is concerned.

Whether it’s worth taking a gamble on this happening now given the high chance of further turbulence over the rest of 2019, however, is open to debate. If I were to buy today, I’d certainly be checking my portfolio was suitably diversified — by geography and sector — before pulling the trigger.

If no compromise is reached on our EU departure then easyJet will surely remain in the FTSE 250 for the foreseeable future.

The post Could easyJet fly back into the FTSE 100? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. 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.

I think investors’ lack of love for the UK bank may have gone too far. Here, I’ll explain why I remain a buyer. I’ll also look at a major airline stock that’s currently out of favour.

The RBS 6% yield

It’s been a long while since Royal Bank of Scotland shares offered investors a 6% dividend yield. But the latest market forecasts suggest shareholders will receive a payout of 14.2p per share this year, giving a forecast yield of about 6.2%.

This dividend looks fairly safe to me. It should be covered 1.9 times by forecast earnings of 26.2p per share and backed by the bank’s strong balance sheet.

What else is good?

But its dividend isn’t the only attraction. In terms of valuation, the shares trade at a 22% discount to their net tangible asset value of 286p per share. That suggests a reasonable margin of safety, in my view.

Meanwhile, the bank’s profitability improved last year. Underlying return on tangible equity rising to 4.8%, compared to 2.2% one year earlier. Although this is still well below RBS’s medium-term target of 12%, I think it represents good progress.

Problems ahead?

Guidance for the year ahead is cautious. The bank expects an increase in bad debt levels and management remains concerned about the impact of Brexit uncertainty on the economy.

Another risk is that chief executive Ross McEwan has resigned. He remains in the post but the bank hasn’t yet appointed a replacement, so strategic progress could slow.

However, these risks are already known and understood by the market. In my view, the current share price represents a good long-term buying opportunity. I hold the shares and would be happy to buy more.

Too soon for this flyer?

Shares in Irish airline Ryanair Holdings (LSE: RYA) fell today after the budget flyer said full-year profits fell 29% to €1.02bn during the year to 31 March. Today’s figures contained a mix of good and bad news, in my opinion.

The good news was that by cutting fares, the airline is still able to fill seats despite adding capacity. More than 139m passengers flew Ryanair last year, a 7% increase from 130m in 2018. The airlines sold 96% of available seats, up from 95% in 2018.

The bad news is that Ryanair had to keep cutting ticket prices despite a sharp rise in costs. This suggests to me the airline doesn’t have much pricing power at the moment. This may mean there’s too much capacity on some short-haul European routes.

Is now the time to buy?

Ryanair’s cash generation remains strong and profits are expected to be flat this year. But this guidance depends on the firm managing to increase total revenue per passenger by 3%.

In the meantime, fuel costs are expected to climb by another €460m. Delivery of more fuel efficient Boeing 737-MAX aircraft has been postponed due to the grounding of this model.

Ryanair shares have fallen by more than 40% from their 2017 peak of about €18. They now trade on about 12 times forecast earnings. Although that seems reasonable, I suspect profits could have a little further to fall. I wouldn’t rush to buy. I think the shares could still get cheaper.

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Roland Head owns shares of Royal Bank of Scotland Group. 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.

Having lost 30% of its value over the last 12 months, does the stock now represent great value? I’m still not convinced. 

Low fare environment

To be fair, the update wasn’t devoid of positives. The number of passengers carried by the firm rose by 8% in the three months to the end of December to 32.7 million. Revenue also climbed 9% to €1.53bn, supported by customer demand for extras such as priority boarding and reserved seating. 

Nevertheless, the firm was hit by a combination of more expensive fuel prices, staff costs and a 6% fall in average fares to below €30 as the airline continues to compete against rivals for travellers’ cash.

Despite this, Ryanair was keen to stress that it had the lowest unit costs of all airlines operating in the EU and that “this gap is widening“. The £11bn cap went on to announce a change in structure with each of its four subsidiaries (including the loss-making Laudamotion) gaining their own CEOs and management teams. Michael O’Leary will now take up the position of Group CEO and has agreed to stay with the company until “at least July 2024“.

None of this, it would seem, was sufficient to soothe investors’ concerns over the possibility of further hits to earnings (and the share price).

Back in January, Ryanair announced that profits would be between €1bn and €1.1bn. Today, however, it stated that it could not dismiss the possibility of further reductions in air fares, particularly if lower oil prices allow flagging competitors to continue operating. As a consequence, full-year profits could come in even lower, even more so in the event of any security incidents or “unexpected” developments on Brexit.

As far as the latter is concerned, Ryanair said that it had taken “all necessary steps” to protect itself in the event of a no-deal outcome but hopes that “common sense will prevail“.

Cash rich

While it’s vital to look beyond the most recent set of numbers before making an investment decision, today’s news does little to change my view that Ryanair looks less enticing as an investment compared to its listed competitors.

Rival easyJet is the clear option for those looking to generate an income from their investments (since it’s the only one that pays a dividend) but peer Wizz Air (LSE: WIZZ) — which reported a 10% rise in passenger numbers today — would be my pick for more growth-focused market participants.

Priced at 15 times earnings, Wizz may be more expensive to buy than Ryanair (P/E of 12) but a predicted 21.5% EPS rise in 2019/20 brings the former down to a little less than 13. Perhaps more importantly, a PEG ratio of just 0.54 suggests investors will be getting a lot of bang for their buck.

But there are other attractions. Returns on capital are far higher on average at the Geneva-based business (27% vs 14%). It also possesses a huge amount of cash on its balance sheet, while Ryanair had a net debt position of €1.5bn at the end of Q3 thanks to ongoing investment. At a time of high economic uncertainty, Wizz’s financial standing is surely preferable.

Should there be further turbulence ahead, I may just take advantage. 

The post Tempted by the Ryanair share price? I’d buy this FTSE 250 growth stock instead appeared first on The Twelfth Magpie.

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Paul Summers 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.

But last week’s profit warning from Ryanair — its second in three months — neatly encapsulates other problems faced by the industry.

Despite carrying more passengers than originally forecast, the firm — recently named the ‘worst short-haul airline‘ – stated that necessary cuts to fares had hit earnings. As such, it’s now likely to generate profits in the range of €1bn-€1.1bn, rather than €1.1bn-€1.2bn in 2018/19.

While not immune from the low-fare environment, I still like the look of easyJet (LSE: EZJ) over the Michael O’Leary-led firm. Based on market’s reaction to today’s trading update, it seems I’m not alone.

Brexit-ready

Total revenue in the first quarter of its financial year rose by 13.7% to a little under £1.3bn. Passenger numbers in the three months to the end of December also increased — by 15.1% to 21.6m — although capacity growth was hit by late deliveries on new aircraft and the infamous drone ‘event’ at Gatwick in December. 

Ah yes, that incident. Despite keeping costs under control over the reporting period, the Luton-based business did suffer a £10m cost impact as a result of needing to support 82,000 stranded passengers and cancel 400 flights (although the number of cancellations in Q1 2019 was still lower than over the same period in the previous year).

In addition to the above, total revenue per seat also declined as a result of operations at Tegel still needing to be optimised, the move to new accounting standards, and one-off events not being repeated (e.g. the collapse of Monarch and Air Berlin, and Ryanair’s cancellation of flights). 

On a more positive note, easyJet reiterated that it was “well prepared” for Brexit, with 130 aircraft now registered in Austria as a precuationary measure, even though both the EU and the UK have given assurances that flights won’t be affected. Looking ahead, the company sought to reassure investors by stating that demand for flights “remains solid” and that forward bookings for after 29 March were “robust” and “ahead of last year,” despite no one still having any idea as to the exact form Brexit will take. 

While predicting a loss from its operation in Berlin, the company also said that expectations on pre-tax profits for the full year — ending in September 2019 — are “broadly in line” with what the market is anticipating. 

Still good value

I was positive on easyJet when I last covered the FTSE 100 constituent four months ago and there’s nothing in today’s figures to alter my view.

Lower air fares should lead to less competition as smaller rivals struggle to make ends meet. Although unpleasant for everyone involved, the drone fiasco last December should also ensure that security is increased at airports across the country, thus making this a mere blip for the £4.6bn-cap.

Moreover, the shares still look fairly cheap on a little over 10 times forecast earnings (Ryanair’s stock is still more expensive), and offering a 4.9% yield. A near-£400m net cash position is another positive that shouldn’t be overlooked.

So, although things are likely to remain turbulent for a while, I see any further falls in the price of easyJet’s stock as an opportunity to buy on temporary weakness rather than sell on fear.

The post Why I think FTSE 100 stock easyJet still offers great value appeared first on The Twelfth Magpie.

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Paul Summers 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.

Today I want to look at one share I’d buy and one I’d sell after recent news. Let’s get the bad news out of the way first.

Strikes prove costly

The share price of budget airline Ryanair Holdings (LSE: RYA) was down by 10% at the time of writing on Monday, following a profit warning.

The firm says that profits for the year to 31 March 2019 are now expected to be between €1.1bn and €1.2bn. This represents a reduction of about 10% from previous guidance of €1.25bn to €1.35bn. Ryanair said that rising fuel costs and disruption caused by strike action are to blame for the cut.

The full cost of repeated strikes appears to be rising. In today’s statement, the airline admits that forward bookings and ticket prices for the final quarter of the year are lower than expected. Understandably, customers aren’t too keen on booking tickets when so many flights are being cancelled.

New EU rules on compensation for passengers left stranded by strikes are also adding to the total cost of the disruption.

Too clever by half?

Airlines shares have fallen after today’s news from Ryanair. This suggests that markets are pricing in an uncertain outlook for the wider sector. But my feeling is that Ryanair’s problems may be due at least partly to chief executive Michael O’Leary’s famously aggressive approach to costs, including staff.

Mr O’Leary complains that strikes are being “incited by competitor employees”. I’ve no idea if this is true. But it does seem that Ryanair crew feel they are getting a worse deal than staff at rival airlines.

Budget rival easyJet (which I hold) confirmed last week that its full-year profits would be in the upper half of previous guidance. This seems to support my view that Ryanair’s problems are at least partly self-inflicted. For this reason, I rate the shares as a sell.

A safer alternative?

My stance on airlines isn’t without risk. If you’re concerned about the impact of rising fuel costs on airline profits, then one alternative might be to consider investing in bus and train operators.

Bus and rail group Stagecoach (LSE: SGC) has lost nearly 50% of its market value over the last three years and now looks very cheap to me. Rising fuel prices could be good news for this firm, as drivers might consider ways to cut down on car usage.

These numbers tell me to ‘buy’

Stagecoach’s cash flow and debt look acceptable to me, but I’m especially attracted to the group’s generous earnings yield of 10%. This ratio compares operating profit with enterprise value (market cap plus net debt). It tells me how much profit a company is making relative to its overall valuation, before interest and tax costs.

One potential concern for equity investors is that analysts are forecasting a 10% reduction in earnings next year.

That’s not ideal, but personally I think this bad news is already reflected in the stock’s modest valuation. Stagecoach shares currently trade on just 8.5 times 2018/19 forecast earnings, with a prospective yield of almost 5%. At this level, I see it as a low-risk dividend buy.

The post One bargain FTSE 250 dividend stock I’d buy in October (and one stock I’d sell) appeared first on The Twelfth Magpie.

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Roland Head owns shares of easyJet. 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.

For those committed to adopting a patient buy-and-hold strategy, however, I think the company is rapidly approaching great value. 

Upbeat on outlook

Today’s Q4 update was as good as could be expected. Registering a “strong performance” over the period, the business revealed that pre-tax profit for the full year would now be in the “upper half of previous guidance” at between £570m to £580m. That’s despite the £5.3bn-cap continuing to feel the effects of disruption across Europe due to strikes, air traffic restrictions and severe weather.

Passenger numbers for the last 12 months are expected to be 5.4% higher at almost 85m, with total revenue per seat up 6.5% at constant currency. Total reported revenue for the full year, including that from the company’s operations at Berlin Tegel airport, is forecast to be a little less than £5.9bn.

The firm was also optimistic on its outlook, predicting capacity to increase around 10% to roughly 105m seats over 2018/19. Revenue over the first half — October to the end of March — is likely to decrease by “low-to-mid single-digits“, however, following one-off benefits experienced this year (Monarch and Air Berlin going bankrupt, and Ryanair’s infamous period of flight cancellations). Foreign exchange headwinds are also expected to hit pre-tax profit by about £10m.

Perhaps most positively, an improved performance at Tegel over Q4 has led the company to predict that it will break even in Berlin next year.

Losing altitude… for now

Whether easyJet’s share price is likely to recover in the near term is difficult to say, especially given that today’s fairly bullish update looks to have been greeted with an apathetic shrug by the market.

Even news that Ryanair has been forced to cancel 250 flights across Europe, due to pilot and cabin crew strikes, hasn’t helped sentiment. 

Findings reasons as to why this might be so isn’t particularly hard.

Clearly, the elephant in the room (Brexit) continues to weigh on investors’ minds. Hard, soft or whatever, the longer negotiations over our EU exit drag on, the more skittish the market is likely to become, particularly with regard to companies that are already operating in hyper-competitive, cyclical industries. 

That said, it’s surely the case that at least some of this uncertainty is now firmly priced in.

At a little under 10 times forecast earnings for the next financial year, easyJet’s shares are looking better value by the day. And they’re certainly cheaper compared to rivals Ryanair and Wizz Air — both of whom have also seen their stocks slip over the summer months.

The former is also a great source of dividends. In 2018/19, analysts are forecasting a near-26% hike to the total dividend to 69.5p per share, equating to a bumper 5.25% yield at the current share price. Since neither Ryanair nor Wizz Air return cash to their shareholders, easyJet is a clear winner for income, as well as for value hunters.

Of course, a lot could happen over the next few months to impact on the share price and the security of these cash returns. Nevertheless, with its sound finances, strong brand, and quality management team, I think easyJet should emerge from any turbulence relatively unscathed.

The post How low can the easyJet share price go? appeared first on The Twelfth Magpie.

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Paul Summers 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.