On Monday (NASDAQ:MNDY), UBS analyst upgraded shares of Ryanair (RYA:ID) (NASDAQ: RYAAY) from Neutral to Buy, setting a new price target of EUR23.15, up from the previous EUR17.25. The upgrade is based on an optimistic outlook for the airline's performance in 2026, highlighting four key reasons for the positive adjustment.
The analyst cites the normalization of base effects compared to 2019 as a significant factor, anticipating that by 2025 Ryanair's performance will align more closely with other low-cost carriers. This alignment is expected to set the stage for more favorable year-over-year comparisons in 2026.
Additionally, a tight industry supply environment is noted, with limited aircraft deliveries and schedules potentially boosting yields due to reduced competition.
The UBS analyst also points to Ryanair's effective control of costs excluding fuel. With the expectation of a benign inflationary environment going into 2025 and strategic capacity additions in 2026, further non-fuel cost increases should be mitigated. This improved cost control is seen as a positive driver for the airline's financial health.
Moreover, the timing of Easter in April 2025 and a modest capacity increase projected at only 5% for 2026 are also expected to contribute to positive yield trends for Ryanair. UBS suggests that the market may not be fully appreciating Ryanair's potential for cash flow return on investment (CFROI), as current pricing does not reflect the medium-term CFROI trends identified by HOLT.
In summary, UBS's new outlook for Ryanair reflects a belief that the airline is poised for stronger financial performance in the coming years. The firm emphasizes that the current stock valuation, trading under 5x 2026 estimated EV/Ebitda, is conservative compared to the pre-COVID-19 historical average of approximately 8x.
In other recent news, Ryanair reported an 18% decline in after-tax profits to EUR 1.8 billion, even as passenger traffic increased by 9% to a record 115 million. The airline's fleet also expanded with the addition of Boeing (NYSE:BA) 737 Gamechanger aircraft, reaching 172 operational by the end of October. Despite facing headwinds, the company maintains a strong balance sheet, with gross cash exceeding EUR 3.3 billion.
Ryanair has also been proactive in growing its operations. The company opened five new bases and introduced 200 new routes. However, management expressed caution regarding FY '25 profit guidance due to risks such as geopolitical conflicts and air traffic control staffing shortages.
These are some of the recent developments that investors need to keep an eye on.
InvestingPro Insights
Recent InvestingPro data aligns with UBS's optimistic outlook on Ryanair (NASDAQ: RYAAY). The company's P/E ratio of 13.84 suggests a relatively attractive valuation, especially considering the strong return of 10.69% over the last three months. This performance supports UBS' view on the airline's improving financial health.
InvestingPro Tips highlight that Ryanair holds more cash than debt on its balance sheet, indicating financial stability. This strong financial position could enable the company to capitalize on the tight industry supply environment mentioned by the analyst. Additionally, management has been aggressively buying back shares, which often signals confidence in the company's future prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into Ryanair's financial outlook and market position.
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