Resolution Of Pratt & Whitney GTF Issues And Fleet Expansion Will Strengthen Future Operations

Key Takeaways

• Strategic focus on network densification enhances financial performance through optimized routes and increased frequencies, improving revenue per seat kilometer and profitability.
  
• New aircraft deliveries, alongside improved fleet utilization, bolster revenue and net margins by capturing market share in Central and Eastern Europe.
  
• Ongoing engine issues, airport pricing pressures, and economic uncertainties pose risks to cost management, net margins, and earnings stability.

Catalysts

Engages in the provision of passenger air transportation services.

• The resolution of Pratt & Whitney GTF issues, while still ongoing, is expected to have less impact on operations going forward, signaling a potential reduction in future maintenance costs and disruptions. This can improve net margins as maintenance efficiency is optimized.
  
• A return to growth facilitated by new aircraft deliveries and a more favorable competitive environment is expected to bolster revenue through increased capacity and market share capture, particularly in Central and Eastern Europe where demand is rising.
  
• Improved operational integrity and stabilized fleet utilization have set a foundation for better cost management and scheduling efficiency, which can positively impact earnings and net margins as operational disruptions decrease.
  
• Strategic focus on network densification rather than diversification aims to enhance financial performance and profitability, likely leading to improved revenue per available seat kilometer (RASK) by optimizing existing routes and increasing frequencies.
  
• Continued optimization of tax planning, alongside efforts to manage the impact of FX fluctuations, is projected to support net earnings, cushioning the effects of inflationary pressures and volatile market conditions on the overall financial outlook.

Wizz Air Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wizz Air Holdings's revenue will grow by 15.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 6.0% in 3 years time.
• Analysts expect earnings to reach €484.9 million (and earnings per share of €3.28) by about March 2028, up from €170.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €562.2 million in earnings, and the most bearish expecting €319 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.2x on those 2028 earnings, down from 12.2x today. This future PE is greater than the current PE for the GB Airlines industry at 6.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.28%, as per the Simply Wall St company report.

Wizz Air Holdings Future Earnings Per Share Growth

Risks

• The ongoing issues with Pratt & Whitney GTF engines and the lengthened maintenance cycles could continue to result in higher than expected costs, affecting net margins negatively.
  
• Groundings due to engine issues limit fleet utilization, which can constrain capacity and potential revenue growth.
  
• Increasing monopoly pricing pressures from airports due to capacity constraints and inflation mean that costs could rise, adversely impacting net margins.
  
• Unrealized losses from foreign exchange volatility have impacted net profits and could continue to do so, given their unpredictability.
  
• The longer-term uncertainty of economic conditions and inflationary pressures across labor and supply chains could further increase operational costs, challenging earnings stability.

Valuation

• The analysts have a consensus price target of £17.191 for Wizz Air Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £38.12, and the most bearish reporting a price target of just £9.03.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.0 billion, earnings will come to €484.9 million, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 12.3%.
• Given the current share price of £16.88, the analyst price target of £17.19 is 1.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.