Story
Wizz Air Downgraded by RBC on Concerns Over 'Flattered' Earnings and Slow Recovery
Summary
RBC Capital Markets has lowered its rating on Wizz Air to 'Underperform,' arguing that investors are overestimating the airline's profit recovery pace and that recent earnings were artificially boosted by one-off gains.
RBC Capital Markets has downgraded Wizz Air Holdings (LON: WIZZ) to "Underperform" from "Sector Perform," citing concerns that the budget airline's recent earnings were inflated by non-recurring items and that the market is overly optimistic about its profit recovery.
The brokerage maintained its price target of 900 pence, which implies a potential downside of approximately 20% from the stock's current trading levels. Analysts at RBC stated that their forecasts for fiscal years 2027 and 2028 remain below consensus estimates, even after accounting for the recent drop in fuel prices.
Headwinds Seen Offsetting Fuel Benefits
RBC analysts cautioned that the recent decline in jet fuel costs is unlikely to translate into near-term earnings upgrades for Wizz Air. They believe any benefits will be counteracted by a combination of factors, including:
- Weaker unit revenue, with revenue per available seat kilometer (RASK) expected to remain under pressure.
- Higher ex-fuel operating costs.
- Continued high capacity growth across its core markets in Central and Eastern Europe.
These pressures are expected to persist beyond the first quarter, according to the note.
Questioning Earnings Quality
AdThe downgrade centers on the quality of Wizz Air's fiscal 2026 earnings. RBC pointed out that the headline figures were significantly supported by approximately €542 million in other income, primarily from compensation payments and sale-and-leaseback gains.
An additional €102 million in foreign exchange gains also bolstered the results. RBC expects these income streams to diminish in the coming years, creating a significant headwind for earnings growth even as the airline benefits from having fewer grounded aircraft.
Valuation and Long-Term Outlook
Looking ahead, RBC projects Wizz Air's EBIT margins will improve to about 6% to 7% by fiscal 2030, which is still below the double-digit profitability the airline achieved before the pandemic. The analysts argue that the current stock valuation suggests investors are pricing in a much faster, "hockey stick" style recovery.
This discrepancy leaves the shares vulnerable to a correction if the airline's earnings fail to meet the market's high expectations, RBC concluded.