J.P. Morgan initiates coverage on Jet2 with “overweight” rating, sees 50% upside

Investing.com --  J.P. Morgan has initiated coverage on Jet2 with an "overweight" rating and a December 2026 price target of 1,900p, implying about 50% upside.

The brokerage cites Jet2’s strong free cash flow profile, resilient business model, and improving industry dynamics as key drivers of its positive stance.

Jet2, which operates in the UK short-haul airline and package holiday market, is noted for its differentiated approach.

Unlike peers, the company owns its aircraft and emphasizes customer service, leading to higher loyalty and recurring revenue. With a 21% share, Jet2 is the largest UK package holiday operator, according to ATOL data.

J.P. Morgan sees current share weakness, a 20% year-to-date decline following a cost-driven profit warning and broader travel uncertainty, as a buying opportunity.

“We view this correction as a good entry point for a high returns business which is ‘defensively tilted’ with a net cash balance sheet,” the analysts said.

On earnings, J.P. Morgan estimates Jet2’s adjusted pre-tax profit at £565 million for FY25 and £575 million for FY26, broadly in line with guidance and consensus.

The company posted £6.3 billion in revenue for FY24, with an 8.3% PBT margin. Margins are expected to dip in FY26 due to cost pressures but recover as the fleet is upgraded and new operating bases mature.

Free cash flow remains a highlight. Jet2 has converted cash at over 100% of net income historically, and J.P. Morgan forecasts £2.5 billion in cumulative FCF between FY26 and FY31, equivalent to its current market cap.

While dividends are low and there is no buyback in place, the report flags potential for shareholder returns to increase, supported by a net cash balance sheet of around £2.1 billion.

Jet2 trades at 6x forward earnings and a 20% FCF yield, placing it at the lower end of peer valuations.

J.P. Morgan applies a 20% discount to historic multiples due to slower expected growth, but still sees meaningful upside, “PBT per passenger or seat flown, Jet2 is around 3x higher than airline peers,” the analysts noted, attributing it to Jet2’s growing package mix and value-added services.

The analysts also emphasized Jet2’s ability to weather downturns. Even under a 15% revenue drop scenario akin to the global financial crisis, J.P. Morgan expects the company would remain EBIT-positive.