Ryanair still has significant room to grow its operations across Europe, according to Davy Stockbrokers, which raised its target price for the carrier's shares.
Analyst Stephen Furlong reaffirmed his 'outperform' rating on Ryanair shares and expects them to hit €7. They shot up over 4pc on Tuesday after the carrier confirmed a deal – which was first reported in the 'Irish Independent' last week – to buy 175 aircraft from Boeing that will help the airline increase its annual passenger numbers to beyond 100 million by 2019. The shares jumped nearly another 4pc in early trading yesterday.
Goodbody Stockbrokers also upped its price target for the shares, to €7.25, on the back of the Boeing deal. "For us, one of the most important aspect of the order is the rational growth profile," said Goodbody analyst Donal O'Neill. "Ryanair will grow just 3-5pc out to 2015 with flexibility to scale up or down dependent on the environment. In our view, this will prove supportive for yield growth, particularly given the near term capacity discipline peers plan to exercise."
Davy Stockbrokers pointed out Ryanair has about a 12pc share of intra-European capacity when measured by the number of available seats. In the United States, Southwest – the original model for Ryanair – has roughly a 21pc share of the intra-US market.
"Ryanair's substantially lower cost base offers a competitive advantage that should allow for continued growth," said Mr Furlong. The airline's costs, excluding fuel, are about half that of rivals and Davy says Ryanair will be able to grow its share of the market to 20pc.
The broker added that Ryanair had indicated its gross capital expenditure would be between €400m and €600m in 2014 and 2015, rising to just over €1bn between 2016 and 2018 and trailing off to between €700m and €800m in 2019.
"Given the airline's strong free cash flow generation, share buybacks/dividends could occur in the middle part of the decade," added Davy.
Other brokers have recently upgraded Ryanair shares. Last week, US brokerage Raymond James upgraded Ryanair's Nasdaq-traded stock from 'market perform' to 'outperform'.
In January, Zaxks upgraded the shares from 'neutral' to 'outperform' with a $43.50 price target. The shares closed up nearly 3pc in New York on Tuesday at $41.53. RBC also upgraded Ryanair shares to 'outperform' yester-day.
However, Citigroup has maintained its 'neutral' rating on Ryanair, despite acknowledging that the deal with Boeing ends years of uncertainty surrounding the airline's growth plans. Citi downgraded Ryanair to 'neutral' from 'buy'.