EasyJet was the biggest faller in the FTSE 100 yesterday after Bank of America Merrill Lynch cut its rating on the stock to “underperform” from “neutral.”
Shares fell 6.4%, or 94p, to £13.65, making it the worst-performing FTSE 100 stock in percentage terms.
Analysts at the firm said earnings headwinds were expected to put pressure on easyJet’s shares.
“We believe the consensus earnings-per-share upgrade story is over at easyJet, as negative yield momentum will cause confidence in the upgrade cycle to shatter,” the bank said.
“The share price has already shown signs of wilting under Europe’s sweltering summer airline overcapacity problem. But this recent price move is misleading in the context of history.
“The company has already admitted to a lack of underlying earnings’ growth with its near-term guidance. We … forecast [2014] pre-tax profit of £555 million (versus consensus of £567 million) and earnings per share of £1.10 (versus consensus of £1.13).
“Thereafter, with limited underlying earnings’ growth likely in the second half, the overcapacity issue worsening and allocated seating benefit now mature, consensus will slowly start to get serious about its 2015 forecasts.”
EasyJet shares have risen more than five-fold since 2001 but have lost almost a quarter of their value since their peak in April, the Times reported.
The budget airline also dragged down rival British Airways and Iberia parent International Airlines Group, which fell 3.5%.