EasyJet flies higher on RBC Capital upgrade

Budget airline easyJet flew higher on Tuesday as RBC Capital Markets upped its stance on the stock to 'sector perform' from 'underperform' and hiked the price target to 1,325p from 875p, saying it's likely the company has reached its profit nadir.

The bank said it was lifting the stock on the growing chance the EBITDAR margin has troughed. It also said the demand outlook has firmed and the balance sheet outlook has improved. "Our sector perform reflects a 70-75% chance this is already priced into the shares."

RBC argued the case for a better outlook, pointing to an improvement in the supply/demand balance and an expanding gap of strong customer rankings versus competitors.

"Our recent research suggests easyJet ranks strongly with its customers and staff - which we see as crucial advantages in building long-term revenues and profits (and a disadvantage to very poorly ranked competitors Air Berlin, British Airways and Vueling).

"The wide and widening gap between easyJet and its competitors suggests there might be a growing chance easyJet’s pricing (in future) outperforms the industry - reflecting its well-placed (relative) quality metrics, as viewed by its customers and staff."

At 0900 BST, the shares were up 2.4% to 1,299p.