Ryanair (NASDAQ: RYAAY) shares are trading relatively flat during the trading session on Monday morning; as the company releases its fiscal year 2023 results to the public, some investors may be taking a breather before deciding the direction of the company and the stock as a result. In addition, some analysts have lost faith in the European airline operator after lowering their price targets a few months ago.
]However, today's entire picture looks a lot different in a positive way, leading some to think that these targets may be raised again to their former glory and above.
As industry volumes start to pick up, looming competition in part from names like Deutsche Lufthansa (OTCMKTS: DLAKY) is felt and voted in by financial markets. While Lufthansa is currently trading on a price-to-earnings ratio of 12.5x versus Ryanair's 13.1x, this does not necessarily imply more or less potential; it is simply a vote.
This vote merely translates into investors willing to pay a higher premium for Ryanair's current (and future) underlying earnings over those of Lufthansa. They would be wise to do so considering the trends the company is experiencing and is poised to continue to ride on.
The Recovery Play
Ryanair's website hosts a monthly "key stats" section, where investors can gauge the company's activity levels by analyzing trends in metrics such as the number of passengers, load factors, and customer satisfaction stemming from the percentage of on-time flight schedules. For example, over a twelve-month basis, volumes have increased by a 7% as measured by the number of passengers, 16 million in April 2023 versus 14.2 million a year prior.
This metric, compared on a month-to-month period, will serve better justice to the improving trends the company is experiencing. For example, March of 2023 saw only 12.6 million passengers, 21% lower than April's 16 million volume, amplifying one of the foundational reasons investors should take advantage of the next flight up RYAAY stock.
As these volumes increased, trends enabled management to report a 124% revenue increase within their earnings press release. Outperforming bearish expectations are only the beginning, as the company overcame a 355 million Euro loss in the first quarter of 2022 to report a 1.43 billion Euro net income a year later. Of course, these benefits trickled down to investors as earnings per share improved from a loss of 0.21 euros to a gain of 1.16 Euros per share. The highlighted trends contributing to these positive results lie within a 74% increase in total traffic, a 10% increase in fares over pre-COVID levels, optimized cost structures, and expansionary CAPEX leading to increased market share in the region.
All in the Numbers
As Ryanair analyst ratings point to a low double-digit upside target from today's stock prices, there are reasons to believe that conservative assumptions lead to these targets. As of the first quarter of 2023, free cash flows stood at nearly 2 billion euros, a 62% increase year over year; investors could start to expect no further share dilutions needed to finance the company's operating losses. As operating expenses declined by a massive 75% from management initiatives to boost margins, investors can be reassured that their financial well-being is kept in mind.
Fuel and oil costs were down by an impressive 113%. However, investors should not be as impressed, considering oil prices are virtually out of management's control. What is more important to note is the double-digit cost reductions across all the other items, which command can and did have a direct hands-on effect.
Staff costs were reduced by 53% as layoffs were implemented, and efficiency was a key management measure this year. As Ryanair expands and rejuvenates its fleet, its subsequent maintenance and repairs expenses have come down from previous levels, these items saw a 46% reduction during the measured twelve-month period.
These heating trends have no end in sight, as management is replenishing - and expanding - its fleet of airplanes as if expecting sustained demand shortly. Within its earnings presentation, management announced its order placement for 300 MAX-10 jets from Boeing (NYSE: BA). Considering that Boeing is experiencing increased order backlogs from various airline operators, it is safe to assume that Ryanair is also poised to ride on industry-wide tailwinds.
As Ryanair charts show, the stock is attempting a breakout from previous resistance/support levels within the $90-$95 per share range. Considering it has held up nicely above these levels, investors could reasonably expect further analyst rating upgrades amid bullish results, which should also aid in the subsequent price rally in the stock.