Broker snap: easyJet flying high after Citigroup ugprade

10th Apr 2013 09:23

The share price of budget airline easyJet received a boost on Wednesday by Citigroup which upgraded its rating for the stock, saying that it expects strong profit growth and continued market-share gains this year.Citi has lifted its recommendation from 'neutral' to 'buy' and hiked its price target from 1,022p to 1,210p. The broker said that the new target price is based on a price-to-earnings multiple of 14, up from 12 previously, to reflect the recent market re-rating.Shares were up 4.08% at 1,063.71p by 09:32 on Wednesday.Citi expects easyJet to record strong earnings per share (EPS) growth of around 30% this year. Half of this growth will be as a result of a reduction in seasonal losses in the first half, while the other half is due to flat unit fuel costs (after hedging) and stabilising oil prices. The compound annual growth rate in EPS is expected to fall to around 6-7% thereafter.The broker also expects the company to continue to improve its market share: "We estimate easyJet already has a c9.0% share of intra-Europe air travel passengers and would expect this to grow by at least 0.3% pa [per annum], taking share from weaker airlines and down-sizing/restructuring flag carriers and charter airlines. "We expect the overall intra-Europe air travel market to grow by c1.0% pa."Meanwhile, easyJet is thought to have sufficient aircraft orders and options to enable 3-5% annual seat growth through to 2016.Finally, Citi also said that sustainably positive free cash flow generation at easyJet supports dividend growth and potentially more special dividends.BC