easyJet PLC (LON:EZJ) has been downgraded to ‘hold’ from ‘buy’ by analysts at Berenberg following a rebound in the share price on the back of recent coronavirus vaccine news, as the bank said wider anticipation for demand momentum suggested “more scope for disappointment” due to the airline’s cash burn.
In a note on Wednesday, the broker also raised its price target for the FTSE 250 firm to 820p from 730p to reflect its “better outer-year estimates”, however, Berenberg’s analysts said they preferred other European airlines with “lower cash burn velocity” such as Wizz Air Holdings PLC (LON:WIZZ) or those with “more significant catalysts” such as British Airways owner International Consolidated Airlines Group SA (LON:IAG).
The broker said they expected easyJet to see negative free cash flow through to 2023 and that the “case is building” for the company to issue new equity, adding that the cash burn was “still eroding equity value” of the stock.
Berenberg also said that easyJet’s “extreme discount” to its fleet value had underpinned its previous positive stance on the stock, however, the shares were now considered to be “fairly valued…particularly as investor sentiment continues to improve”, justifying the downgrade.
Shares in easyJet fell 3.4% to 737p in late-morning trading.