Is EasyJet stock still worth buying after Iran attacked?

EasyJet stock (LON:EZJ) has been in turbulent for several weeks due to conflicts in the Middle East. Given the geopolitical instability of the region, it is worth assessing whether inventory is still worth buying.

The relationship of stickiness

Considering how it has been traded since April, we can be allowed to think of the reverse jet as an inverted oil stock. Its stock price is inversely related to crude oil prices, and is understandable considering that fuel accounts for 29.9% of easyJet’s headline airline EBITDA costs. So if oil prices skyrocket, the cost base could skyrocket. This could lead to shrinking margins and lower revenues, and the market appears to be on guard.

That said, the speculative call made by major banks such as JP Morgan about climbing oil to $130/bbl has not come to fruition, and is rarely likely in my opinion. I hold this view for two reasons – a rapid economic upheaval and a ceasefire between Israel and Iran. In fact, since the US carried out Operation Midnight Hammer at Iran’s nuclear facility, oil prices have slipped to pre-attack level of around $68/bbl.

More specifically, its National Security Council has not yet registered with it despite an Iranian parliament’s vote to close the Strait of Hormuz, where around 20.0% of Grove’s oil supply flows. 90.0% of Iran’s oil exports pass through the channel, accounting for 76.5% of government revenue. Closing the strait means Iran is facing a catastrophic economic collapse, which will seriously undermine the stability of its regime.

Furthermore, Iran’s previous attempts to close the straits in the 1980s were not successful either. This is because the US Navy intervened to protect the shipping lane. Needless to say, most of the oil exports in the Channel go to many of Iran’s “allies” such as China, but the US and Europe get most of their oil from other regions. China is not particularly satisfied with the confusion, considering that almost half of its oil imports come from the strait itself.

However, even when oil prices rise, it is worth highlighting that EasyJet is well positioned to overcome short-term spikes thanks to its approximate oil contract. The fact is that the supply of H2 oil is hedged at a whopping 83.0%/MT (current spot rate has returned to $714). Additionally, about 45.0% of the FY26’s fuel is already hedged at an average of $709/mt.

Flight number

Anyway, the geopolitical events weighed less than travel demand, even before the missile exchange between Israel and Iran. After all, management repeated the year-round guidance behind a series of positive tentative results. They cited the rise in Y/Y for H2, even before the peak summer booking period, with a higher load factor and expectations of fuel casks down around 8.0% in FY2025.

This is based on a solid set of H1 numbers, with group revenues increasing by 8.1%, with £3.53 billion. Mostly, passenger revenues rose from 5.4% to £2.16 billion, as travel demand remains strong and can meet the higher capacity introduced. This was revealed to 87.9% with a 1.2% increase in EasyJet’s load factor, as passenger numbers rose 7.6% to 39,371k, surpassing seat growth of 6.1% to 44,915k.

Meanwhile, subsidized revenues rose 7.4% to £978 million. Nevertheless, the main growth driver was the company’s package holiday segment, which realized revenues increased 28.6% to £400 million. According to the board, EasyJet’s holiday business once again expanded its market share from 2.0% to 9.0% as its customer numbers jumped from 27.3% to 1,067K. This was accompanied by a 1.0% increase in ASP of £578.

Critics point to the headline “EBITDA is losing money this year (£5 million), but it’s worth noting that this depends on two main reasons. The first is the undesirable timing of Easter, which is categorized into the third quarter of this year. The second was the promotional price for launching a new winter leisure route for businesses to stimulate demand and reduce future winter losses.

CEO Kenton Jarvis said, excluding the unfavorable timing of Easter this year, H1’s PBT is about £50 million higher at £344 million, a slight improvement from last year’s £350 million figure. This marks a step in the right direction towards EasyJet’s medium-term goal of turning historic winter losses into profits.

On the way to a higher profit

That being said, zooming out of geopolitics, I believe EasyJet is a big investment. I was particularly impressed by the group’s mid-term target. This includes achieving PBT of over £10 billion. Of that, £250 million will be generated from the holidays, with the new fleet bringing unit cost savings of over £3, among many other targets.

Additionally, the reassignment and launch of new routes to maximize profitability has begun paying dividends along with the closure of around 50 non-grading routes. This summer, EasyJet will operate from new bases in London Southend, Milan Linnet and Rome Fiumicino, where demand has been reportedly strong. Therefore, this should result in higher margins through more supplementary opportunities and higher loading factors.

Plus, EasyJet has plenty of opportunities to grow as its holiday attachment rate is still only 6.4%. This is well complemented by the fact that competition on certain routes is also cooled down. For example, Wizz Air retracted its 14 head-to-head route with EasyJet this summer. This allows the range of Gatwick-based airlines to gain more market share and customers over the busy holiday season.

It is no secret that EasyJet’s stock has been essentially Limbo over the past few years and has not violated 600p since 2022. However, stock valuations look very cheap, especially when considering revenue growth. So I think the market is overturning this stock’s fear as it increases EasyJet’s EBIT margin by 7.41% at 100bps at 100bps.

Many of the significant multiples of stocks, such as EV/EBITDA (2.7), suggest that EasyJet is criminally undervalued when compared to the sector average (7.7). Combined with a relatively conservative PEG of 0.6 against the sector’s 1.5, there is a strong argument here that the stock is trading at an absolute bargain, with revenues projected to grow from 16.4% to 28 years.