Davy tips Ryanair and airline sector to rise
Industry consolidation, reduced capacity growth and moderating fuel costs should make for earnings upgrades in the airline sector as it emerges from winter, according to Davy Stockbrokers.
It noted that sector valuations are currently pricing in "a much bleaker outlook".
The broker added that its favourite picks in the sector are Ryanair and Wizz. It also reiterated its 'outperform' rating for Aer Lingus owner IAG.
Davy said the "upside potential in each is too compelling to negate".
"In particular, we believe that Ryanair's current share price levels imply significant and structural issues with its business model and brand, more than just difficult short-term pricing. We not only believe that such fears are overdone; rather, we believe this offers a compelling entry point for those willing to ignore the consensus view," said Davy.
Ryanair, headed by Michael O'Leary, issued another profit warning last week, saying that its winter fares had declined more than expected.
Davy said there is increased intra-low-cost carrier competition in Europe, and that this will continue to be an important driver of the unit revenue performance of airlines such as Ryanair, Easyjet and Wizz.