Is the Easyjet (LON: EZJ) share price going to benefit from a relaxation of UK quarantine system?
Eaasyjet’s share price bounced up on Friday as news of a relaxation of the quarantine system was announced.
Specifically, the government has cut the number of countries on the ‘Red List’ from 54 to 7. According to the gov website ‘‘Passengers returning to England from these destinations will no longer be required to enter hotel quarantine.”
The new system will kick in on 11 October. In doing so, the government hopes to increase international travelling. The new measure may boost travel stocks in the months ahead, particularly the airline sector.
So far, the covid-19 pandemic has dealt a mortal blow to the travel industry. Even Warren Buffett, arguably the greatest investor, dumped his entire airline equity portfolio last year. Many countries remain difficult to visit. High quarantine cost is a particular deterrent.
For Easyjet (EZJ), after a large £1.2 billion rights issue last month, may benefit from a gradual normalisation of the air travel industry. The airline’s balance sheet is strong and ready to take advantage of a rebound in travelling.
At the time of writing, the budget airline trades at 640p.
Easyjet (EZJ) share prices remains medium-term bearish. Support for the stock slowly declined throughout the summer as international travels remained sluggish.
From its spring highs at 900p, when optimism was at its peak (pre-rights issue highs), prices recently touched a low of 550p. However, the risk-reward for shorting the stock is no longer good. There is strong support starting at 500p.
In fact, one may consider buying Easyjet on dips in the next few months as a contrarian bet on the travel industry normalising in 2022. But we should not expect the recovery to be swift as variants of covid are still circulating in many countries.
Easjyet (EZJ) has endured a tough 18 months since the pandemic started in early 2020. But the introduction of a vaccine last November gave investors hope that the future was not as bleak as anticipated.
Over the past year, the consensus for Easyjet has turned more slightly bullish. More analysts are recommending the stock as ‘Buy’ or ‘Outperform’. Many brokers expect Easyjet’s share price to rebound back to 800p and above.
Investors buying Easyjet now should focus on the company’s long term prospect.
Source: Financial Times
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.