Stockbroker stays (mostly) bullish on Jet2 despite last week's warning

RBC maintains its 'outperform' rating on Jet2 PLC despite the recent profit warning, which projects FY26 EBIT at the lower end of the £449m-£496m consensus and reduced winter capacity. While trimming its price target to 2,150p and lowering FY26-FY28 EPS estimates by 5-6%, RBC argues Jet2 remains attractively valued at 7x FY26 earnings with a 10% FCF yield and strong ROCE above 14%. The bank attributes near-term pricing pressures to consumer caution and increased capacity but anticipates potential easing, projecting over 50% upside from current levels given the company's robust long-term growth profile.

Analysis

Despite a recent profit warning from Jet2 PLC, RBC Capital Markets has maintained its 'outperform' rating, signaling confidence in the company's long-term fundamentals. Jet2's guidance for FY26 EBIT is now at the lower end of the £449 million to £496 million consensus, driven by softer pricing on flight-only fares and a slight reduction in winter 2025/26 capacity to 5.6 million seats. This pricing pressure is attributed to a mix of consumer caution, unseasonably warm UK weather, and increased capacity on key routes. In response, RBC trimmed its price target to 2,150p from 2,200p and lowered FY26-FY28 EPS estimates by an average of 5-6%. However, the bank's bullish thesis remains intact, anchored by what it considers an attractive valuation at 7 times FY26 forecast earnings and a robust financial profile. Key strengths highlighted include a strong Return on Capital Employed (ROCE) exceeding 14%, a free cash flow yield of approximately 10%, and a history of robust growth, including a 19% revenue CAGR over the last decade. Despite the near-term headwinds, which RBC suggests may create a more favorable comparison base in FY27, the firm's price target still implies over 50% upside from the current share price of 1,411p.

Key Decisions for Investors

• Investors with a long-term horizon could consider the current share price weakness, driven by near-term pricing pressures, as a potential entry point, given the stock's valuation at 7x FY26 earnings and strong underlying fundamentals like a >14% ROCE.
• It is critical to monitor leading indicators for the travel sector, specifically consumer booking trends and pricing power on flight-only products, as these are the primary risks highlighted for near-term earnings.
• Given the stock's valuation discount to European airline peers and its high free cash flow yield of 10%, investors may find Jet2 an attractive holding for value and cash generation within a diversified portfolio exposed to the travel and leisure sector.