LONDON -- Shares in budget airline easyJet (EZJ -0.60%) (ESYJY -0.15%) have steadily strode higher since the middle of 2011, and in the past six months alone have leapt more than 66%, striking all-time highs of 1,128 pence in the process.
And I believe that the stock still has much further to run owing to bursting growth prospects and an improving ability to grab custom from rival operators. Indeed, just today Morgan Stanley hiked its target price for the carrier's shares by almost a third, to 1,375 pence, affirming easyJet's chunky upside potential.
Airline ready to boost market share
easyJet announced in last week's trading statement that it expects revenues per seat to have risen 8.5% in the September-March period, beating a projected rise of between 6% and 8%, and propelled by stronger-than-forecast late bookings in the run up to the Easter break.
Although overall capacity rose 3.3% from the corresponding 2012 period, falling short of a projected 3.5% increase, this was caused by weather-related cancellations. And passenger numbers rose 5.3% in March, it added.
The company halved first-half losses year-on-year, which is now predicted to come in between £60 million and £65 million. Indeed, cost per seat (excluding fuel) rose 3.5%, at the lowest point of estimates due to the firm's effective cost-management plan during the winter.
I fully expect easyJet to sustain future growth by grabbing market share from other major industry players. Higher-cost rivals such as Iberia and Air France are reducing the number of routes served, as well as flight frequency on the remaining routes, giving rivals such as easyJet room to muscle in.
Furthermore, I believe airlines with the capacity to offer cheaper services are likely to remain in vogue while the beleaguered economic backdrop in Europe continues to strike travellers' wallets.
Earnings growth expected to soar
Broker Investec expects earnings per share to explode 35% in the year ending September 2013, to 83.4 pence, before galloping 12% higher the following year to 93.1 pence.
The airline currently changes hands on a P/E rating of 12.4 and 11.1 for 2013 and 2014 respectively. This represents a healthy discount to a forward earnings multiple of 13.1 for budget airline rival Ryanair Holdings, and 17.6 for the wider travel and leisure sector.
As well, easyJet's status as a value stock is exemplified by a price/earnings to growth readout of 0.4 and 0.9 for this year and next. Any value below one is considered excellent value for money.
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