The EasyJet share price faced turbulence on Thursday after the company published weaker-than-expected earnings. It plunged to a low of 480p, its lowest level since April 24, and 18% below the highest level this year.
EasyJet weak financial results
Shares of EasyJet, one of the biggest budget carriers in Europe, tumbled after the company said that its business faced major headwinds in its third quarter.
Precisely, the company pointed to higher-than-expected fuel costs and a recent air traffic control strikes. These strikes in France cost it about £15 million, while the elevated energy prices cost it £10 million. In a statement, the CEO said:
“We are extremely unhappy with the strike action by the French ATC in early July, which, as well as presenting unacceptable challenges for customers and crew, also created unexpected and significant costs for all airlines.”
At the same time, unlike other large carriers like Delta and United, the company warned that its capacity will grow at a slower pace in the year’s second half.
The company’s trading statement showed that its headline pofit before tax rose to £286 million, up by £50 million from the same period last year. This occurred as the number of seats increased to 28.7 million, while passenger numbers rose to 25.9 million.
Is EZJ a good buy today?
EasyJet is one of the biggest and most popular budget airlines in Europe, with over 340 Airbus aircraft. Its business model is different from that of other top companies like IAG and Lufthansa in many ways.
For example, the company uses just one aircraft model, which helps it to reduce its costs. It also focuses on smaller airports, like Gatwick, Milan Malpensa, Luton, and Bristol.
The company does not offer the many perks that full-service carriers provide, which helps it to save costs and boost profitability. Most notably, its customers are mostly leisure travelers.
EasyJet’s key strength is in its balance sheet. It ned the quarter with a net cash of £803 million. It also entered into a revolving credit facility for about £1.7 billion, which remain undrawn, and will help it to save about £8 billion in interest payments.
Therefore, from a fundamental perspective, the company will likely start its recovery this year.
EasyJet share price analysis
The daily chart shows that the EasyJet stock price peaked at 590p earlier this year and then pulled back as geopolitical risks rose. It has plunged to a low of 486p, its lowest point since April 23.
The stock formed a double-top pattern at 580p and a neckline at 401p. It also moved below the 50-day and 200-day exponential moving averages (EMA), a sign that bears are in control.
On the positive side, there are signs that the stock is forming an inverse head-and-shoulders pattern, a highly popular bullish reversal sign.
Therefore, there is hope that the stock will recover as long as it remains above the 467p shoulder section. A break below that level will indicate further downside, potentially to the key support at 401p.
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