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Here's Why You Should Add Ryanair (RYAAY) to Your Portfolio

Irish low-cost carrier Ryanair Holdings RYAAY has been one of the star performers in the airline space this year. Shares of the company have gained 28.2% on a year-to-date basis, outperforming the Zacks categorized Transportation-Airline industry’s addition of 13.9%.

 

Catalysts Behind the Surge

We are impressed by the carrier’s decision to expedite the growth of its fleet by including more Boeing jets. The carrier’s May traffic report was also highly encouraging. Traffic increased 11%, while load factor (% of seats filled by passengers) improved to 95% from 94% a year ago. Moving ahead, the company is expected to report strong traffic numbers in the near future as well.

Moreover, a 6% increase in net profit for fiscal 2017 (ended Mar 31, 2017) despite a challenging air fare scenario is impressive. The top line expanded 2% to €6,648 million on the back of a 13% rise in traffic to 120 million, while lower costs aided the bottom line. Load factor also increased 100 basis points to 94% in fiscal 2017.

The customer friendly “Always Getting Better" (AGB) program aided results. Net profit for fiscal 2018 is projected to be in the band of €1.4–€1.45 billion, up approximately 8%. The carrier expects ancillary sales to account for 30% of the top line by Mar 2020.

A Broker Favorite

Earnings estimates for Ryanair have exhibited a healthy uptrend. Over the last 30 days, the Zacks Consensus Estimate of earnings for the current quarter has moved up 24 cents to $1.48 per share. In fact, earnings per share for the current quarter are projected to grow 34.55% on a year-over-year basis.

The Zacks Consensus Estimate for fiscal 2018 has also jumped 27 cents in the last month to $7.34 per share. In fact, earnings per share for the current year are projected to grow 27.8% on a year-over-year basis, which compares favorably to the industry reading.

Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Other Positive Metrics

Ryanair’strailing 12-month return on equity (ROE) supports its growth potential. Not only has the company’s ROE of 33.2% remained more or less steady over the last year, it compares favorably with ROE of 29.8% for the Zacks categorized Transportation-Airline industry. This reflects the fact that the company is efficient in using shareholders’ funds.

Currently, the ratio of Ryanair’s long-term debt-to-equity (expressed as a percentage) is 88.8. Even though on the higher side, the reading compares favorably with the industry’s 108.8.

Taking into account the above-mentioned tailwinds and the favorable readings, we believe that the current price represents an attractive entry point for investors. The carrier’s Zacks Rank #1 (Strong Buy) also supports our view, indicating that the stock is likely to outperform the broader market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.  

Furthermore, the company’s Momentum Style Score of ‘B’ highlights its short-term attractiveness. The Zacks Momentum Style Score indicates when the timing is right to grab a stock and make the most of its momentum. Back-tested results show that stocks with Style Scores of ‘A’ or ‘B,’ when combined with a Zacks Rank #1 or 2 (Buy), handily outperform others.

Other Stocks to Consider

Investors interested in the airline space may also consider Air France-KLM SA AFLYY, Deutsche Lufthansa DLAKY and American Airlines AAL. While Air France and Lufthansa sport a Zacks Rank #1, American Airlines holds a Zacks Rank #2.  

Shares of Air France, Deutsche Lufthansa and American Airlines have rallied over 66%, 28% and 17%, respectively, in the last three months.

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Ryanair Holdings PLC (RYAAY): Free Stock Analysis Report
 
Deutsche Lufthansa AG (DLAKY): Free Stock Analysis Report
 
American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
Air France-KLM SA (AFLYY): Free Stock Analysis Report
 
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