Double-whammy leaves easyJet red-faced

It's been flying for the past three months, up over 46% since diving back toward 900p late February. But easyJet was brought crashing down to earth Tuesday after the budget airline published an underwhelming half-year results.

A much bigger-than-expected pre-tax loss for the six months to 31 March of £236 million has spooked the market, undoing all the optimism baked into the share price.

2016 was a tough one for the low-cost carrier, watching almost 50% of its value wiped out in just 10 months. However, a winning run in the run up to these numbers, culminating in a one-year high of 1,333p last week.

Missing expectations was always a risk here, and clear disappointment in the figures had easyJet down as much as 8.5%, closing the session at 1,215p.

Seems analysts had been overoptimistic, although some had an inkling losses would be much larger than last year. Consensus put the deficit at £198 million, so this wasn't even close. And it was way above the £18 million loss in the first half of 2016. Boss Carolyn McCall knew who to blame:

"The first half loss is in line with market expectations and reflects the movement of Easter into the second half as well as currency effects which together had an estimated impact of circa £127 million on the bottom line," she said.

Elsewhere, interim revenues were up 3.2% year-on-year at £1.8 billion, though again below expectations.

But McCall remained defiant amid a sunnier outlook with expectations now more in line with consensus. Pre-tax profit for the full-year is likely to come in at £367 million, the firm said. Forward bookings are ahead of last year at 77% for the third quarter and 55% for the half-year.

McCall, who has overseen share price appreciation since taking over in July 2010 of 196%, said it was a "robust" performance, "with strong cost control, improving operational performance and within guidance for revenue".

"Looking ahead, we are seeing an improving revenue per seat trend as well as the continued reduction of competitor capacity growth," she added. "Cost performance for the full-year will continue to be strong."

UBS's price target for the stock has almost halved over the past three years. The broker has had a 'buy' recommendation in play since late October, but has now put both its rating and target under review.

"Although earnings base looks to have formed, we note recent share price strength," analyst Jarrod Castle explained.

Investec has only just upgraded its target price to £14 (from 950p previously) due to the recent rally in sterling and fall in oil prices, so it's reluctant to rethink just yet. Analyst Alex Paterson kept his 'hold' recommendation despite the near-50% uplift.

He noted Friday that "the potential liquidation of Alitalia and redeployment of fleet outside of Europe would benefit easyJet disproportionately given its low margins and return on average capital employed, as would a further recovery in sterling and decline in fuel prices."

Still, easyJet shares currently trade on almost 14 times earnings per share estimates for 2018. Not obviously cheap.

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