easyJet shares are up 55%: is this FTSE high flyer a buy?

Having started the year on the front foot, easyJet (LSE:EZJ) shares soared after yesterday’s excellent first quarter trade update. As a result, the stock is now up 55% in less than a month. Even so, I still don’t think it’s too late to buy.

pushing higher

Based on current high levels of demand and strong bookings, easyJet anticipates exceeding current market earnings expectations for FY23.

easyJet CEO Johan Lundgren

That was enough to send the stock price soaring 10%. The company reported one of the best business upgrades I’ve seen in the last two years, and it even beat some of its initial guidance.

The airline also impressed on the financial front. Per-seat, ancillary and holiday revenues exceeded initial expectations. This now extends its streak of positive EBITDAR to three consecutive quarters.

Consequently, the board improved the outlook. He now expects the half-year and full-year PBT to be “significantly better” than the analyst consensus.

Not yet at cruising altitude

easyJet still has a long way to go to reach its potential, and that’s because of its new Holidays business. Due to increasing demand for its package service, management now anticipates a total of 1.52 million customers by the end of the year, compared to 1.43 million previously forecast.

In addition, CEO Johan Lundgren reported excellent momentum in bookings. Those vacation packages are 60% booked for the summer and there is already a 24% increase in flight bookings for the third quarter compared to pre-pandemic levels.

Additionally, the launch of 11 new routes to popular destinations such as Paris, Naples and Amsterdam should encourage more passenger numbers. Combine that with the arrival of a more fuel efficient 75 Airbus A320/1 NEO by the end of 2023, and I also expect some improvements in results.

However, the route to cruising altitude is not without turbulence. Fuel prices remain high and are eroding margins. In fact, fuel costs per seat increased another 18% last quarter. In response, the group increased the amount of fuel it is hedging, as spot prices saw an increase of $100 per MT from last quarter.

Isn’t it cheap anymore?

Nonetheless, I remain a big fan of the budget airline’s balance sheet, which is one of the best in the industry. The conglomerate even reported an improvement in its finances last quarter, as net debt fell by £100m.

Having said that, is easyJet stock still cheap? Well, considering its lagging valuation multiples, one could argue that it is.

However, when considering their forward multiples, the stock is starting to look a bit more expensive. My current model translates a conservative £0.17 earnings per share (EPS) figure into a forward P/E of 30.3 at its current share price. This is much higher than easyJet’s long-term average P/E of 18.

projected metrics	1 year forecast
Net income	£130 million
Common actions	758m
EPS	(130m758m) = £0.17
current stock price	£5.15
Forward P/E	(£5.150.17) = 30.3

But for FY24, assuming it hits a consensus EPS of £0.35, the two-year P/E drops to 14.7. Although it’s not the cheapest, it’s still a buy for me, given its long-term advantage. After all, the Liberium brokers and German are optimistic about European airlines due to a “strong pricing environment”. For those reasons, I will buy more easyJet shares before they get even more expensive.

projected metrics	2 year prognosis
EPS	£0.35
current stock price	£5.15
2 years ahead P/U	(£5.150.35) = 14.7