EasyJet share price dive may not be over

EasyJet hopes refreshed guidance will draw a line under parlous trading and a deep share price dive this year, but its stock remains on shaky ground.

EasyJet shares skidded to 3½-year lows on Thursday after finally fessing up that profits were going crash faster than even the most pessimistic expectations.

EasyJet scrapped guidance in the summer, saying trading conditions in the European airline industry had become so uncertain it could “not be precise about guidance”.

Forecasts were subsequently slashed from around £590m analysts were expecting on average as recently as July to £500m-£520m.

Even that range has now proven too optimistic.

The group said on Thursday profits for the year to 30th September would be between £490m-£495m.

EasyJet’s stats update wasn’t entirely reassuring either.

Whilst load factor clawed back ground lost in the summer, comments on revenue per seat showed the group remains on the wrong side of Europe’s fiercely competitive airfare environment.

For easyJet in particular, that points to Ryanair successfully edging the UK group’s market share back down, after the UK group’s incremental wins in recent years.

Note Ryanair’s load factor rose above its rival’s to 95% in September.

Wizz Air’s near-20% rise in passengers in the year-to-September also looks like encroachment.

Whilst we were recently proved wrong that easyJet’s shares had found a floor, it makes sense to expect the stock to stabilise now guidance uncertainty has passed.

Additionally, there’s little doubt that the skill of easyJet’s management team has saved the group from a much worse profit outcome during difficult operating conditions.

For that reason, we find easyJet sticking to a 50% pay-out ratio as credible for now and expect the dividend outlook to also cushion the shares.

However, it is not inconceivable that a 50% pay-out ratio could start to be viewed more critically by investors if profits and core metrics show no signs of improvement into year end.

From a technical perspective, easyJet stock has on Thursday breached a zone of support which held throughout market volatility following the Brexit vote, and, when easyJet scrapped forecasts.

The significance of the stock’s landing spot so far on Thursday is not exactly a proven floor: resistance turned support in March 2013 and near a strong support after a sharp dive that April.

On balance, traders are likely eye lower levels, particularly with a 1.272 (913p) Fibonacci extension of EZJ’s latest down leg nearby.

With no other glaringly obvious support below that marker, any sign of continued deterioration of easyJet trading into the year-end could extend the stock’s already worst-in-class fall this year even further.

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