Bank of America upgrades easyJet, IAG on positive vaccine data

Bank of America Merrill Lynch upgraded easyJet and International Consolidated Airlines Group on Wednesday following the positive update on a potential Covid-19 vaccine.

"The positive news on a Covid vaccine increases visibility on our forecasted demand recovery in 2021-22, with industry revenues improving to around 80% of 2019 levels by 2022, from around 25% in the fourth quarter of 2020," BofA said.

BoA upgraded two stocks - IAG, the Spanish owner of British Airways, and budget carrier easyJet - to ‘buy’ from ‘neutral’. IAG is now its only ‘buy’ in the full service carriers, which BoA said reflected "its strong balance sheet and expected benefits of a gradual transatlantic recovery".

On easyJet, BoA said concerns about liquidity "were fading on the back of better visibility on the travel demand recovery".

It added: "We continue to favour low cost carriers, given their exposure to leisure travel and strong balance sheets. Our top picks remain Ryanair and Wizz."

Earlier this week, US drug giant Pfizer and its German partner BioNTech said their latest research showed its candidate coronavirus vaccine was able to prevent more than 90% of people from getting Covid-19, with no safety concerns raised.

Although the research has not been peer reviewed and still requires regulatory approval, the news fuelled hope that a vaccine could be available by the end of the year and stock markets around the world surged.

Airlines were some of the biggest gainers following the announcement.

"Our global travel survey showed that 24% of respondents in Europe would travel international only after a vaccine was developed and 76% plan to travel next for a vacation or to visit friends and relations," noted BoA.

"After the recent rally, European airline stocks are trading at 5.8x 2022 EBITDA on our estimates, above their historical average multiples of 5x. We think this is justified since we don’t expect a full demand recovery by 2022."

As at 1230 GMT, shares in easyJet were ahead 4% at 739.6p, while IAG was up 7% at 147.75p.