2022 hasn’t been a great year for easyJet (LSE: EZJ) shares. As a result of disruption across the airline industry, they’re down about 35% year to date.
The thing is though, conditions in the airline industry appear to be finally normalising. With that in mind, should I buy easyJet shares for 2023?
The outlook for 2023
The budget airline’s recent full-year results, for the year ended 30 September, painted a mixed picture for its outlook.
There were certainly positives in the guidance. For example, easyJet said that peak holiday weeks this winter (including the Christmas week) are back to normal levels of volume. It also said Easter bookings were strong, with load factors ahead of last year.
In terms of passenger numbers, the group expects H1 capacity to rise 25% year on year and H2 to rise 9% year on year.
However, there were a few areas of concern in the guidance too. For instance, the company warned that the airline industry is likely to face higher costs from fuel prices, wage inflation, and the high US dollar next year.
Fuel prices, in particular, could be a major challenge. easyJet said that it expects prices in H1 to be up 50% year on year.
So, overall, the outlook wasn’t fantastic.
Consumer spending uncertainty
Of course, one issue that clouds the outlook further is consumer spending. Right now, a lot of people across Europe are really struggling to make ends meet. This is likely to have an impact on discretionary expenses such as holidays abroad.
In the past, easyJet has held up well when consumers have been strapped for cash, due to its low prices. However, there’s no guarantee it will be the same this time around.
Are easyJet shares cheap?
Turning to the valuation, analysts currently expect easyJet to generate earnings per share of 22.4p for the year ending 30 September 2023. At the current share price, that equates to a forward-looking price-to-earnings (P/E) ratio of about 16.3.
I don’t see a lot of value at that multiple. That’s above the median FTSE 100 P/E ratio of 13.3. It’s worth pointing out however, that the earnings estimate for the following year is 41.7p. That equates to a P/E ratio of less than nine, which is quite low. In other words, there could be some value on offer here for patient investors.
Dividends
Is easyJet likely to pay a dividend in 2023? Well, at present, analysts do expect a small payout of 8.23p per share this financial year (which equates to a yield of about 2.3%) However, I would take this forecast with a grain of salt.
In the recent full-year results, easyJet said: “The Board is mindful of the importance of capital returns to shareholders and will reassess the potential for, and structure of future shareholder cash returns when the market conditions and financial performance of the Group allows.”
My move now
Putting this all together, I don’t see easyJet as a strong buy right now. To my mind, the outlook is uncertain and the stock’s valuation looks quite full.
All things considered, I think there are better stocks to buy for my portfolio today.
