Is EZJ still the better investment?

IAG (LON: IAG) and EasyJet (LON: EZJ) share prices have done well in 2023 as the aviation industry recovery continued. EasyJet shares have jumped by over 50% this year while IAG has jumped by less than 20%. Other airline stocks like Ryanair and Wizz Air have also bounced back. 

IAG vs EasyJet share prices
IAG vs EasyJet share prices

EasyJet vs IAG

In November, I wrote an article that compared EasyJet and British Airways parent, IAG. In that article, I concluded that EasyJet was a better investment, thanks to its strong market share in the regional aviation market and its strong balance sheet.

I also argued that EasyJet was a leaner organisation than IAG, which operates in the UK and Spain. IAG also owns several brands like Iberia, British Airways, Aer Lingus, and Iberia Express. In most periods, operating standalone businesses is usually better than being a conglomerate. This explains why Alibaba decided to separate its business into six separate entities in March.

EasyJet share price did well because of its focus on the leisure market, which had a faster recovery than the business market. IAG was hit by a slower recovery of business travel as China remained in a lockdown in 2022.

Also, unlike IAG, which has a net debt of over £10 billion, EasyJet has one of the cleanest balance sheets in the industry. It has a net debt of just £0.7 billion. Its cash and short-term investments are about £3.6 billion, which is slightly lower than its total market cap of £3.83 billion. In a note, an analyst at Interactive Investor said:

“IAG has a major task in repairing its balance sheet after the pandemic tore through revenues and forced the group into substantial borrowings.” 

Another challenge for IAG is that business and intercontinental business is getting more competitive as companies like Emirates boost their market share. Recently, Saudi Arabia announced that it will launch a new airline to offer the services. As such, I suspect that British Airways will lose its market share in the coming years.

EasyJet is still a better investment

IAG had a strong performance in 2022 as it returned to profitability. Its full-year profit after tax came in at £431 million while EasyJet’s loss before tax was £178 million. IAG believes that it will lose about £200 million in the first quarter of the year before returning to profitability in the final half of the year. It expects that its operating profit will be between 1.8 billion and 2.8 billion euros.

The main reason why I still prefer EasyJet is its valuation and the fact that it has a strong balance sheet. As mentioned, its market cap of about £3.8 billion is slightly above that of its cash on hand. Most importantly, IAG has a growing market share in the regional aviation industry in the region,

EasyJet share price forecast

EasyJet share price
EasyJet share price chart

The daily chart shows that the EZJ stock price has been in a tight range in the past few months. In this period, it has struggled to move above the key resistance at 520p, the year-to-date high. This price is also slightly above the 50% Fibonacci Retracement level. 

The stock is also being supported by the 50-day and 100-day moving averages. Therefore, EasyJet shares will likely have a bullish breakout as buyers target the next level at 632p, the 78.6% retracement level. This view will be confirmed if it moves above 520p.

IAG share price forecast

IAG share price chart
IAG share price chart

The daily chart shows that the IAG stock price peaked at 173.65p in February and then pulled back to 127.85p. It is now attempting to bounce back and is hovering at the 25-day and 50-day moving averages. The stock seems to be in the process of forming a double-top pattern, meaning that it will likely rise to  173.65p.

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Source: https://invezz.com/news/2023/04/05/iag-vs-easyjet-stocks-is-ezj-still-the-better-investment/