Will Fastjet PLC, easyJet plc And International Consolidated Airlines Group SA Boost Your Portfolio Returns?

Are these 3 airline plays ripe for investment? Fastjet PLC (LON: FJET), easyJet plc (LON: EZJ) and International Consolidated Airlines Group SA (LON: IAG).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Africa-focused budget airline company Fastjet (LSE: FJET) have fallen by around a third today after it released a profit warning.

The challenging trading conditions that are affecting the African aviation industry have lasted for a longer period than originally anticipated by Fastjet’s management. Therefore, it expects to report results for 2016 that are materially below current expectations and doesn’t expect to be cash flow positive this year.

Clearly, this is disappointing news for the company’s investors. And while Fastjet has $20m in cash and is targeting cost savings through route rationalisation and reduced capacity, it states in today’s update that a fundraising may be needed later this year.

Looking ahead, Fastjet has huge potential to deliver impressive profit growth in the long run. The African aviation industry remains highly appealing for long-term investors, but with the company facing such an uncertain near-term future, it seems prudent to watch rather than buy Fastjet at the present time.

What’s the alternative?

That’s at least partly because there are a number of other enticing options within the aviation space. One example is budget airline easyJet (LSE: EZJ). Its shares have disappointed in 2016, falling by 12% and underperforming the FTSE 100 by 11% since the turn of the year. However, it continues to offer excellent growth prospects, with net profit due to rise by 7% in the current financial year, and by a further 15% next year.

Such impressive growth rates don’t command a high rating at the present time however, since easyJet trades on a price-to-earnings (P/E) ratio of just 10.3. This puts easyJet on a price-to-earnings growth (PEG) ratio of 0.7, which indicates that its shares offer growth at a reasonable price.

Furthermore, easyJet continues to be an excellent income play. Its shares yield 3.9% and with dividends due to rise by 18.3% next year, it’s set to yield 4.6% in 2017. And with dividends being covered 2.4 times by profit, there’s plenty of scope for additional rises in shareholder payouts in the medium to long term.

Value for money

Also worthy of purchase in the aviation space is British Airways owner IAG (LSE: IAG). Like easyJet, its shares offer superb value for money, with a low valuation and double-digit earnings growth combining to produce a PEG ratio of 0.5. And with the price of oil set to remain low over the medium term and the global economic outlook continuing to be positive in the long run (despite recent volatility), IAG appears set to benefit from an economic tailwind over the coming years.

Despite failing to pay a dividend for a number of years, IAG has quickly become a relatively appealing income stock. It’s due to pay out 19.8p per share in dividends in the current financial year, which puts it on a yield of 3.7%. And with dividends being covered 4.3 times by profit, it seems likely that shareholder payouts will rise at a rapid rate moving forward, thereby offering improving income prospects as well as a potential catalyst for the company’s share price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of easyJet. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »