Budget airline easyJet (LSE: EZJ) has had a turbulent 2020. Recently the easyJet share price has been rising on the back of positive coronavirus vaccine news and the hope of a return to normality.
Does this mean I should buy easyJet shares now? Let me consider the investment case.
Doing all the right things
It is no surprise that easyJet announced its biggest loss ever, of £1.3bn, in November. The coronavirus crisis and government travel restrictions saw its passenger numbers halve and revenue decline 53%.
In response to the global pandemic, the budget airline has taken the right steps. It has preserved cash by cutting operating costs and suspending the dividend. The company also raised £600m from a sale and leaseback of some of its aircraft during the 2020 financial year.
easyJet has also raised capital through a rights issue and to date has secured £3.1bn in liquidity. For the short term anyway, the company can weather the storm. It may have to raise additional cash if travel restrictions continue in 2021.
Bumpy ride for easyJet shares
Investors have been concerned over the level of easyJet’s debt. The FTSE 250 carrier is working with AlixPartners, one of the world’s foremost restructuring firms, to refinance its hefty debt pile.
The use of an external advisor can give investors confidence that easyJet is aware of the challenges it is facing and is doing everything in its power to weather the storm. I see this as a positive for easyJet shares.
Despite easyJet’s woes, the company still has some attractive qualities. The airline operates a low cost business and has a strong brand. It focuses on short haul flights rather than long haul journeys. Analysts predict that the short haul market is likely to recover at a quicker rate that its long haul counterpart.
New CFO & director deals
easyJet has been on the hunt for a new CFO after the existing finance boss, Andrew Findlay, announced his resignation earlier this year. Findlay will depart the firm in May 2021, following unsuccessful attempts by the firm’s founder, Sir Stelios Haji-Ioannou, to oust him.
The company has announced the appointment of Kenton Jarvis as the new CFO, who will start in February 2021. Jarvis will be leaving TUI to help the low cost operator navigate the ongoing pandemic. A fresh pair of eyes on easyJet’s finances is not a bad thing, in my opinion.
There has been a lack of director deals from senior board members such as the CEO and chairman. I see this lack of easyJet share purchases as a sign that management believes there could be challenges ahead for the company, which makes me nervous. Other investors may see this as a red flag and it could be a negative for the easyJet share price.
Outlook for easyJet shares
According to marketscreener.com, 9 out of 22 analysts rate the stock as a hold. This highlights that while there is potential for pent-up holiday demand, investors are still uncertain over the easing of the government travel restrictions.
Despite the uncertainty, Deutsche Bank has recently upgraded easyJet shares from a hold to a buy, with a price target of 1150p.
The outlook still remains bleak for easyJet, which forecasts that it will operate at 20% capacity in Q1 2021. A successful vaccine roll-out and easing of travel restrictions are some of easyJet’s challenges. I expect some share price volatility, so for now I will hold off buying.
