Investec upgrades EasyJet despite "disappointing" results

Analysts at Investec lifted their target price on shares of EasyJet, despite the company's "disappointing" (albeit in-line with guidance) results the day before in comparison to those from its peer group.

Foremost, they highlighted the company's "encouraging" guidance and potential purchase of fallen rival Air Berlin - which would give the carrier another market leading position.

Meanwhile, the cessation of flights from other rivals who had fallen into insolvency was a tailwind, analyst Alex Patterson said.

So too were the flight cancellations by RyanAir.

On top of that, further consolidation and restructuring were likely, Investec said.

Regarding the outlook for the airline's profits in fiscal year 2018, Patterson raised his estimate for EasyJet's profits before tax (pre Air Berlin) to £507m.

"We anticipate that there will be further restructuring of short haul capacity by other carriers and with low margins, easyJet is extremely sensitive to increases in fares. Fuel hedging for FY19e is also better than we expected and may give a short-term competitive advantage," he explained.

As for the contribution from Air Berlin, Patterson forecast the acquistion would be successfully closed in December with flights starting from January, adding £60m of operating losses in 2018 followed by profits of £20m in 2019 and £30m in 2020.

For all of the above reasons, the analyst upped his target on the shares from 1,400p to 1,600p while moving his recommendation on the stock from a 'hold' to a 'buy'.