RBC upgrades easyJet to “outperform,” sees FY26 profit beating forecast

RBC Capital Markets upgraded easyJet to "outperform," raising the price target to 650p from 570p, based on expectations of stronger profit growth in FY26, forecasting headline profit before tax of £791 million, 3% above consensus. The upgrade is driven by easing fuel prices (unit fuel costs expected to decline 7% in FY26), fleet upgrades reducing unit costs, and expansion of the easyJet Holidays segment; RBC projects 14% PBT growth in both FY25 and FY26. Demand indicators remain strong, with travel-related spending up 6% year-over-year in April and easyJet's Q3 and Q4 bookings ahead of last year.

Analysis

RBC Capital Markets has upgraded easyJet to "outperform" from "sector perform," concurrently raising its price target to 650p from 570p, underpinned by an optimistic outlook for fiscal year 2026 profit growth. Analysts at RBC project easyJet's FY26 headline profit before tax (PBT) to reach £791 million, exceeding the consensus estimate of £762 million by approximately 3%, and anticipate robust 14% PBT growth in both FY25 and FY26. This positive revision is attributed to several key factors, including an expected 7% reduction in unit fuel costs in FY26, supported by 44% of fuel needs being hedged at prices over 10% lower year-over-year, which is significant as fuel constitutes over 25% of the airline's cost base. Further contributing to this outlook is the ongoing fleet transition, with 17 new A320neo and A321neo aircraft deliveries scheduled for FY26 (accelerating from nine in FY25) replacing older models and driving down unit costs, alongside a strategic expansion of the easyJet Holidays segment, where cross-sell rates are anticipated to improve from the current 6%. Demand indicators remain strong, evidenced by a 6% year-over-year increase in travel-related spending in April and strong forward booking figures for Q3 (80% sold, up 0.5 percentage points YoY) and Q4 (42% sold, up 2.2 percentage points YoY) of the current fiscal year, suggesting the airline is on track for FY25 expectations. easyJet currently trades at approximately 7.4 times estimated FY26 earnings, with RBC's new 650p target implying a valuation of around 8.3 times, suggesting potential for further multiple expansion if confidence in achieving medium-term profit targets, such as the £1 billion PBT goal, strengthens.

Key Decisions for Investors

• Investors should consider RBC's 'outperform' rating and increased price target as indicative of a positive outlook for easyJet, driven by anticipated profit growth and operational efficiencies.
• Key metrics to monitor include the realization of projected fuel cost savings, the successful integration and cost benefits from new aircraft, and the growth trajectory of the easyJet Holidays segment, particularly its cross-sell attachment rate.
• Given the current valuation at approximately 7.4 times FY26 estimated earnings and RBC's target implying 8.3 times, there may be an opportunity for capital appreciation, especially if the company demonstrates progress towards its £1 billion PBT target, potentially warranting a buy or hold stance depending on individual risk appetite and portfolio strategy.