The easyJet (LSE: EZJ) share price has been under pressure since the coronavirus pandemic began. Since the end of 2020, the stock’s fallen nearly 40%, although it’s recovered from the worst of its losses during 2021. Indeed, over the past 12 months, shares in the airline group have surged 68%.
Compared to its peers, such as Wizz and IAG, I think easyJet’s at a disadvantage. However, after the company’s recent cash call, I reckon the business is primed and ready to take advantage of the global economic recovery in the next few quarters.
The easyJet share price opportunity
easyJet may not have the same cost advantage as Wizz or access to lucrative long-haul routes as British Airways owner IAG, but it does have a strong brand. It also has a large European footprint.
Still, despite these advantages, the group has weaknesses as well. These include an ageing fleet and a weak balance sheet.
But the good news is, easyJet’s recent cash call has put the group on a solid financial footing. The group recently raised £1.2bn from investors via a rights issue. That was far more than analysts were expecting. The City had pencilled in a cash call of as much as £600m.
The easyJet share price has reacted positively to the fundraising despite the company not needing the cash. It had more than £3bn of liquidity with its banks and cash balance.
Nevertheless, raising more money when it can is a sensible decision. It’s gone some way to offsetting concerns about the group’s financial positions. It may provide management with headroom to reinvest in the business and capitalise on the post-pandemic recovery.
The airline plans to fly more than two-thirds of its fleet in the fourth quarter of the year. This growth, coupled with the cash call, could re-convince investors that the stock’s worth buying.
Having said all of the above, there’s no denying the organisation faces substantial challenges. The aviation industry’s incredibly competitive, and rising fuel costs will compress the group’s already-thin profit margins.
What’s more, while it may be targeting that two-thirds fleet-flying return in Q4, that doesn’t mean customers will want to fill these seats. It may take years for customer demand to return to 2019 levels.
Considering all of these factors, I think the easyJet share price will continue to react positively to the company’s return to normality. However, it’s impossible to predict what the future holds for the stock market. As long as there’s no more bad news from the business, I think investors will continue to return.
That said, I’m not a buyer of the stock today. Rather than owning the easyJet share price in my portfolio, I’d rather buy one of the company’s peers, such as Wizz, with its lower cost base.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.