Investing.com -- Shares of Ryanair ADR rose on Thursday after BofA Securities revised its outlook on the company, increasing the fiscal year 2025 earnings per share estimate by 9%.
At 8:24 am (1224 GMT), Ryanair ADR was trading 10.1% higher at $113.21.
The upward revision comes as Ryanair shows resilience in several key areas.
CEO Michael O’Leary recently reassured investors about stronger booking trends, particularly following a challenging July where the airline had cautioned about declining fares and weakened consumer demand.
However, August and September turned out to be more positive, with a smaller-than-expected decline in fares, easing concerns.
“Our FY25E net income increases 9% as we raise our F2Q25 fare estimate to -5% y-y, factor in lower fuel prices and include the new share buyback,” the analysts said.
This improvement is also echoed in the revised estimates for Q3, with fare declines now expected at 2%, down from a flat projection.
Fuel costs have played a critical role in this revised outlook. Jet fuel prices, which dropped by 10% over the past month, are now integrated into the updated earnings estimates.
This drop is a relief for Ryanair, as it mitigates the rising labor costs, handling fees, and air traffic control charges that have been driving expenses higher.
The airline is expected to experience a 1% decrease in unit costs in FY25, a positive signal amid growing pressure from operational expenses.
The airline recently announced an €800 million share buyback to be completed by May 2025, following an earlier €700 million buyback in mid-2024.
Alongside this, Ryanair will distribute a €480 million dividend, yielding a 2.5% return from FY24 earnings.
This combined capital return represents a 7% potential yield for shareholders over the next 12 months, underscoring the airline’s strong balance sheet and free cash flow generation capabilities.
BofA expects Ryanair's free cash flow yield to reach 14.2% by FY25.
BofA’s price objective for Ryanair has now been set at €21 per share, up from the previous target of €19, with a corresponding ADR price of $143.
This represents a 23% premium on Ryanair’s ADR shares, reflecting continued investor confidence. The shares currently trade at 12 times the FY25 EPS estimate, below the airline’s historical average of 13 times.
This discount is considered unjustified by BofA, especially given Ryanair’s expected annual earnings growth of 15% from FY25 to FY28, alongside continued market share gains.
Ryanair’s ability to sustain its low-cost leadership in Europe’s airline market has been a key driver of its performance.
The company is expected to further solidify its position, gaining an additional percentage point in market share, bringing its intra-European market share to 22% in 2024.
However, the winter outlook remains somewhat uncertain, as capacity growth across the continent is expected to remain high, increasing competition and putting downward pressure on fares.
Ryanair will face competition from other airlines, with European capacity projected to grow by 7% in Q4 2024, which may limit the fare improvements seen over the summer.
BofA’s revised forecast sees Ryanair delivering solid financial performance in FY25, despite these challenges. The brokerage projects a net income of €1.5 billion, which, while a slight decline compared to FY24, aligns with broader market expectations.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) are forecasted to reach €2.87 billion, supported by a 21% EBITDA margin. The airline is also expected to pay a dividend of €0.40 per share in FY25, representing a 2.48% yield.