Image source: easyJet plc
The easyJet (LSE:EZJ) share price has underwhelmed lately. Since March 2020, it’s lagged behind the FTSE 250 as a whole, as well as trailing some of its industry peers.
For example, International Consolidated Airlines Group, the owner of British Airways, has seen its share price more than double over the same period. Jet2 is up over 150%. Having said that, it’s still managed to outperform WizzAir, whose stock market valuation has fallen by a quarter over the past five years.
But today (21 March) is a good day for those who owned the budget airline’s shares before they went ex-dividend on 20 February as the group’s paying its dividend for the year ended 30 September 2024 (FY24). All those on the register on 19 February, will receive 12.1p a share.
Based on a current share price of 482p, this implies a yield of 2.5%. This is a solid – if a little unspectacular – return. It puts it just outside the top half of FTSE 250 stocks.
Looking forward, the consensus of analysts is for a modest year-on-year increase. By FY27, the expectation is for a dividend of 16.45p. If this proves to be correct, the stock’s forward yield is 3.4%. Of course, it’s important to remember that payouts aren’t guaranteed.
| Financial year | Forecast dividend (pence) | Implied yield (%) |
|---|---|---|
| 2025 | 14.45 | 3.0 |
| 2026 | 15.92 | 3.3 |
| 2027 | 16.45 | 3.4 |
At the moment, the average yield for the FTSE 250 is also 3.4% so income investors seem unlikely to turn to easyJet to help boost their earnings. However, those looking to grow their capital and also receive a respectable dividend could consider buying the stock.
Let me explain.
A closer look
Since the pandemic, the airline has recovered strongly.
And yet the shares still appear cheap to me. The consensus of analysts is for earnings per share of 70.7p in 2025. This gives a modest forward price-to-earnings (P/E) ratio of 6.8.
With a similar mix of flights and package holidays, Jet2 is probably easyJet’s closest rival. It has a forward P/E ratio of 7.5. Okay, this isn’t a huge difference but if the two airlines were valued on the same basis, easyJet’s share price would be 10% higher.
Some analysts use the price-to-earnings growth (PEG) ratio to assess value for money. The airline’s PEG is comfortably below one, suggesting that the stock’s undervalued.
| Financial year | Forecast earnings per share (pence) |
|---|---|
| 2025 | 70.7 |
| 2026 | 75.0 |
| 2027 | 82.0 |
Pros and cons
The 19 analysts covering the stock appear bullish.
Their median price target for the shares, over the next 12 months, is 700p. That’s a premium of 45% to today’s price. Even at the bottom end of the range (570p-900p) there’s significant price growth potential. In fact, 15 of them recommend the stock as a Buy with the remaining six advising their clients to hold on to their shares.
But there are risks. Economic growth in Europe — easyJet’s core market — is looking increasingly fragile. If consumers find their incomes are being squeezed they tend to ditch city breaks and weekends away. And although the oil price has softened lately, this can be volatile and could have a major impact on earnings. Competition is also fierce.
However, with EPS forecast to grow by over 10% a year up until 2027, a package holiday business that appears to be doing well, a strong brand and a respectable dividend, long-term investors could take a look at easyJet.
