(Corrects quote in the second paragraph)
Bernstein reduced its price target and earnings forecasts for Ryanair (RYA.IR) after the Irish budget airline reported lower-than-expected fiscal first-quarter results and guided toward lower summer fares.
"Ryanair shares fell -5% on Q1 earnings, following a guide to lower summer fares YoY. The recent re-escalation of fighting in the Middle East is a bigger deal: forward curves are now above the peak in early April. That revives the prospect of competitor bankruptcies and capacity reduction. Shares currently look to discount [less than] EUR10 net income per passenger earnings power. We continue to view that as too pessimistic," according to a Tuesday note.
The research firm flagged a 7% consensus miss for Ryanair's net income, primarily due to a 6% year-over-year decline in average fares. Analysts also noted a downgraded fiscal second-quarter outlook that now projects summer fares to be "modestly lower," compared with the previous expectation of flat or better.
Accordingly, analysts trimmed their price target for the outperform-rated stock to 30 euros from 32.50 euros. The research firm also cut its fiscal 2027 adjusted EPS forecast to 1.71 euros from 2.09 euros on weaker fares, while its 2028 EPS projection was lowered to 2 euros from 2.30 amid expectations of higher fuel expenses.
"There are two paths to better numbers: fuel prices fall, or capacity does, as the industry rationalizes. Pressure will be highest on airlines with weaker balance sheets and poorer unit economics. For the shares to be appropriately valued here requires, simultaneously, both high fuel prices and high capacity. We fail to see how the industry can sustain that," Bernstein wrote.