Citi Research moved EasyJet to a buy recommendation from neutral in a research note dated Wednesday, saying the airline's earnings trajectory is poised to improve next year as fleet renewal and recovering industry margins begin to take effect after a two-year period of stagnation.
Price target and valuation
The brokerage increased its target price to 600p from 490p, a revision that implies a prospective total return of 27.4% that includes a 2.7% dividend yield. Citi described the stock as trading on what it believes is an undemanding valuation versus sector peers.
Near-term margin drag
Citi's note highlights that airline cost inflation has constrained margins, even as EasyJet's Holidays unit delivered robust growth. The firm projects a profit before tax margin of 3.8% for FY26, which it says would be 1 percentage point lower than the prior year.
The research house also signalled that sell-side consensus estimates will probably need to be pared back by roughly 5% for the year. At the same time, Citi observed that investor positioning in EasyJet is currently "the most negative in the sector," indicating that a weak summer outlook may already be reflected in the stock price.
Shift to FY27 as fleet benefits arrive
Citi expects the market dialogue to pivot toward FY27 over the next six months as EasyJet starts to realise the advantages of its fleet rejuvenation programme. The majority of the projected improvements are seen arriving in the 24 months after September 2026, when A319 retirements are expected to accelerate and aircraft gauge is forecast to improve.
Analysts at Citi estimate that their models capture only about half of the company’s targeted fleet benefits to date, yet their forecasts still imply a 16% compound annual growth rate in PBT for FY26-28, which they note is around 6 percentage points above consensus.
Medium-term growth and capital returns
The brokerage ranks EasyJet as offering the second-highest expected three-year EBIT CAGR in its coverage at 18% for FY26-29, while pointing out the stock trades on the lowest multiple within its set at 4.7x FY26 earnings. Citi also highlighted an EV/IC ratio of 0.8x, which it said implies market expectations of returns materially below the company's cost of capital. By contrast, Citi projects the company's return on invested capital to stabilise at roughly 10% by FY29, matching the firm’s assumed 10% weighted average cost of capital.
To reflect the anticipated improvement, Citi raised its margin assumptions for FY27-30 to 5% from a prior 4.1%, a change that underpins the higher target price.
Scenario analysis
In its scenario set, Citi's bull case reaches 920p if EasyJet achieves the upper bound of its stated £7-10 PBT per passenger ambition. The bear case drops to 270p and assumes the fleet investment fails to generate margin improvement.
Near-term risks
Citi flagged immediate downside risks tied to summer pricing. The brokerage assumes unit revenue growth of 1.6% year over year for the season, helped by roughly a 1 percentage point currency tailwind. Should unit revenues deteriorate by 2-3 percentage points - producing flat to -1% pricing - Citi estimates the share price could fall by 15-25%.
The note also points out capacity in EasyJet’s served markets is slated to increase by 4.5% this summer, which is below broader European traffic growth of 4.8% over the last year. While Citi says this is a variable to watch in the near term, it maintains that medium-term margin tailwinds from fleet renewal outweigh these risks.
Financial forecasts
Citi recorded EasyJet’s reported profit before tax at £610 million for FY24 and lays out forecasts of £645.7 million in FY26, rising to £787.8 million in FY27 and £875.7 million in FY28. Sales are modelled to increase from £11.1 billion in FY26 to £12.7 billion in FY28. Citi additionally noted that EasyJet’s Holidays division continues to perform well, and that margins should begin to recover as fleet renewal accelerates, refocusing investor attention on FY27 following a challenging summer.