Prediction: this gob-smacking easyJet share price forecast suggests it will fly past rival IAG

The easyJet (LSE: EZJ) share price has been idling on the tarmac since the pandemic. By contrast, British Airways owner International Consolidated Airlines Group (LSE: IAG) has flown, smashing its budget rival.

IAG, as it’s known, has climbed 134% over the last year. For easyJet, it’s just 12% (following a 9% drop in the past month). I expected better, but for contrarian investors, easyJet’s underperformance could present an opportunity.

Dirt cheap FTSE 100 valuations

At first glance, easyJet looks super-cheap, with a price-to-earnings ratio of just 7.89. But after checking, IAG trades at a similar P/E of 7.7 despite its turbo-charged recovery.

Both are trading at roughly half the FTSE 100 average of around 15, but the discount alone doesn’t make either a no-brainer. Airline stocks are among the most cyclical on the market. Their fixed costs are high and revenue can vanish at the first sign of disruption, from natural disasters to industrial action, war or economic trouble.

Climate change even poses a threat. The Mediterranean might be getting too hot for summer holidaymakers, while the UK’s warming up. If that continues, peak summer demand could fall. Anti-tourist campaigns may have an impact too. So while easyJet looks affordable, it may not be quite the bargain it first appears.

Profits and passengers up

Still, easyJet has had positive developments. On 17 July, it reported a £286m Q3 profit before tax, up £50m from last year. Passenger numbers rose 2% to 25.9m, while its load factor nudged up to 90.2%.

It’s also switching from net debt to a projected net cash position of £450m by the end of 2025.

There were some clouds too. French air traffic control strikes are expected to shave £25m off full-year profits. Fuel costs have been creeping up.

Demand remains solid though. easyJet has already sold 67% of its Q4 airline capacity and 50% of its easyJet Holidays Q1 2026 programme. That’s promising.

Debt down, margins up

The airline sector’s having a moment, despite recession, tariff and geopolitical concerns. IAG’s results on 1 August showed first-half revenue up 8% to €15.91bn and operating profit up 43.5% to €1.88bn. It is still net debt but the total fell to €5.46bn while margins widened to 11.8%. IAG expects to keep making progress despite macro uncertainty.

So what do the experts say? Analysts expect the IAG share price to hit 413p within a year. That’s a modest 8% above today’s 380.6p. These forecasts will have been made before last week’s results though, and may need upgrading.

For easyJet, brokers are much more bullish. Their median 12-month forecast sits at 658.6p. That’s an eye-popping jump of almost 35% from today’s 489.3p. The wind’s with easyJet, assuming those forecasts are correct.

For those taking the long-term approach, this could be a tempting moment to consider easyJet as a (slightly risky) recovery play. Its engines haven’t quite roared into life yet. With the valuation low, profits rising, and confidence gradually returning, it may not stay on the runway forever.

I’ve been saying that for a year though, and it hasn’t happened yet. As ever with investing, there are no guarantees. I’m sticking with IAG. It’s done well for me so far.

The post Prediction: this gob-smacking easyJet share price forecast suggests it will fly past rival IAG appeared first on The Motley Fool UK.

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Harvey Jones has positions in International Consolidated Airlines 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.