JP Morgan cuts Ryanair to 'neutral' on weaker earnings

JP Morgan cut Ryanair shares to 'neutral' but stayed positive on Wizz Air as the bank reduced earnings forecasts for European budget airlines.

Analyst David Perry said low-cost carriers' earnings would be hit by higher fuel costs and new Covid-19 lockdowns in Europe.

Perry increased his current year estimates for Ryanair and Wizz but cut his easyJet forecast by 17.1%. In the following year earnings will be 14.4% lower than expected at easyJet, 18.8% lower at Ryanair and 20.5% lower at Wizz, he said.

He reduced his rating on Ryanair shares from 'overweight' and cut his price target to €17.50 from €18.50. The shares' strong run over the past six months leaves only 12% potential return, he said.

Perry also questioned whether UK investors would like the idea of buying pricier American depositary receipts after Ryanair classed UK shareholders as non-qualifying nationals following Brexit.

Ryanair no longer has material upside to our PT [price target]," Perry wrote in a note to clients. "Also, we are not sure all UK investors will immediately embrace the ADRs as an alternative to the [ordinary shares], creating a near-term technical headwind for the share price."

After easyJet, rated 'neutral', announced it would refinance some lending it has "more breathing space" but remains less liquid than Ryanair and Wizz, JP Morgan said. Airlines are consuming cash with many of their planes grounded because of Covid-19 travel restrictions.

"We remain overweight on Wizz given its growth outlook, ultra-low cost base, and strong liquidity," Perry wrote. Wizz has enough liquidity to survive the unlikely prospect of no flying for 24 months, he estimated.

Perry trimmed his price target for Wizz to £57.25 from £58.50 and easyJet to 825p from 875p.