RBC charts show these European carriers in valuation ’sweet spot’

Investing.com -- RBC Capital Markets’ latest analysis identifies Jet2 PLC (LON:JET2), International Consolidated Airlines Group (LON:ICAG), and Ryanair Holdings (LON:0RYA) as the most attractively valued names in the European airline space.

The broker’s chart analysis, which compares return on capital employed (ROCE) versus EV/EBIT valuation, shows that the “sweet spot” for investors lies in the bottom-right quadrant of their chart, signaling above-average returns paired with below-average valuations.

Jet2 and IAG fall squarely into that zone, with both names described as “relatively cheap on this basis despite generating above-average returns.”

Ryanair is also “not far off the sweet spot of the chart,” RBC analyst Ruairi Cullinane wrote. While trading at a premium to most peers on EV/EBIT, the stock is said to justify that multiple given its industry-leading ROCE.

Wizz Air (LON:WIZZ), by contrast, does not screen attractively. RBC expects the carrier’s ROCE to rise and its valuation multiple to fall as earnings recover from calendar year 2027 onward.

However, Cullinane believes “the market has reflected at least some of Wizz Air’s and Lufthansa’s potential ROCE recovery beyond CY26E in the shares.”

Still, the analyst acknowledges Lufthansa’s (ETR:LHAG) improvement efforts, including a fleet plan and turnaround initiatives. He also sees a more favorable German macro environment, but for now, the airline still screens less favorably than peers.

easyJet (LON:EZJ), which also carries an Outperform rating, has a slightly lower ROCE than most rivals, but trades at a “below average EV/EBIT multiple.”

Cullinane points to measures such as “Holidays growth, upgauging, reducing winter losses” as potential drivers of future profitability, particularly highlighting Holidays growth as ROCE-accretive.

Jet2’s position is further supported by a favorable working capital model and customer deposits that enhance both its ROCE and EV valuation metrics. Even after adjusting for these factors, RBC estimates Jet2 trades at less than 5x EV/EBIT on 2026 estimates.

The bank uses EV/EBIT instead of EBITDA to better account for capital intensity and cost differences across the group, arguing it better captures the true financial position of these businesses.

While other valuation approaches might favor stocks like Ryanair even more, RBC prefers the consistency of using returns-focused metrics in a capital-heavy industry.