easyJet (LSE:EZJ) Could Be 51% Overvalued Following The £5.5b Apollo Bid
Track your investments for FREE with Simply Wall St, the portfolio command center trusted by over 7 million individual investors worldwide.
Apollo Management X has proposed a £5.5b acquisition of easyJet (LSE:EZJ), offering £7.15 per share in cash with an optional stub equity alternative, while the easyJet board has withdrawn support for a competing Castlelake bid.
The Apollo proposal comes after a strong run in easyJet's share price, with a 30 day share price return of 35.04% and a 90 day share price return of 70.33%. The 1 year total shareholder return of 32.51% suggests momentum has recently been building from both a short and multi year perspective.
If this takeover interest has you thinking more broadly about opportunities, it could be a useful time to scan the market using our screener for 9 top founder-led companies
Bulls view the Apollo offer as evidence that easyJet should command a higher price, while bears point to a stock now trading around £6.75 compared with a £7.15 bid. Which side does the valuation evidence appear to support next?
The most followed narrative currently puts easyJet's fair value at about £4.48 compared with a last close of £6.75, framing the takeover bids against a higher starting valuation bar.
EasyJet Holidays continues to show strong potential, with a target to increase customer numbers by approximately 25% in the next year. This growth in a high-margin segment is expected to significantly contribute to earnings.
Want to see what is baked into that £4.48 fair value? The narrative focuses on faster revenue growth, rising margins and a future earnings multiple that needs careful scrutiny.
Result: Fair Value of £4.48 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, easyJet still faces supply constraints and higher operating costs. These factors could pressure margins and challenge the assumptions behind that £4.48 fair value narrative.
Find out about the key risks to this easyJet narrative.
With sentiment on easyJet clearly split between risks and rewards, use this momentum as a prompt to review the data yourself and decide whether the 3 key rewards and 1 important warning sign.
If takeover activity around easyJet has sharpened your focus, do not stop here. Broaden your watchlist now so potential opportunities do not slip past unnoticed.
Target companies that combine quality with attractive pricing by scanning the market using the 10 high quality undervalued stocks.
Strengthen your income shortlist by reviewing stocks in the 3 dividend fortresses that offer higher yields backed by solid fundamentals.
Prioritise stability by checking out the 7 resilient stocks with low risk scores, helping you focus on businesses with lower overall risk scores.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include EZJ.L.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com