Ahead of the quarterly FTSE 100 reshuffle on Wednesday, budget airline easyJet PLC (LON:EZJ) is set to be the latest company booted out of the index, with its shares currently trading close to a five-year low of around 846.8p in late-afternoon trading on Monday.
However, while the skies are currently looking gloomy for the orange and white carrier, the company could find itself soaring back into the ranks of the blue-chips relatively soon.
One of the key factors behind expectations that easyJet could be on the up again is that the issues currently afflicting the company are part of a broader trend across the sector which has also dented the performance of rivals such as Ryanair Holdings PLC (LON:RYA).
In fact, the Irish airlines share performance has been almost as bad as easyJet’s, having fallen to a three-year low
Rising fuel prices, fierce competition over fares and the ongoing political and economic uncertainty of Brexit have all piled pressure on the airline industry, with easyJet having said in an April update that it was “more cautious” about the outlook for the second half of its current financial year.
Bumpy ride for airlines
Ryanair itself has also been having a bumpy ride, forecasting flat profits for its current year two weeks ago.
However, easyJet and Ryanair have the benefit of being able to weather the currently industry storm which could likely see several smaller players go bust, leaving a vacuum ripe for expansion.
Helal Miah, investment research analyst at The Share Centre, has also said that easyJet will rise back into the FTSE 100 “fairly quickly” due to its good management and rising passenger numbers and higher average revenue per seat.
“The issues here are sector wide rather than stock specific and so we remain fairly confident”, Miah said.
Hikma also for the chop?
Outside of the travel firms, generic drug maker Hikma Pharmaceuticals PLC (LON:HIK) is another contender for FTSE 100 relegation, a downgrade that may carry an extra sting as the group has only been in the index for just over six months, rising into the blue-chips in December following medical group Shire’s acquisition by Japanese pharmaceutical firm Takeda.
Supermarket giant J Sainsbury PLC (LON:SBRY) is also a possible candidate for the chopping block after its share price suffered in the face of a blocked merger with Asda and falling market share. The stock is currently trading at around a 40-year low.
High street retailer Marks and Spencer Group PLC (LON:MKS) had also been looking to face a blue chip exit, however the firm appears to have managed to escape by the skin of its teeth thanks to technicalities over the timing of its recent rights issue, which has lifted its market cap just enough to dodge the cut off.
JD Sports to enter the big league
Going the other way, FTSE 250-listed sportswear retailer JD Sports Fashion PLC (LON:JD.) looks likely to be moved up into the blue chip index as easyJet’s replacement, with the firm one of the few high street retailers to be profiting during a tough period for the sector.
JD Sports recently enjoyed a record year in 2018, with its pre-tax profits surpassing £300mln for the first time ever thanks in part to an almost 50% increase in sales.
Engineering and industrial software firm Aveva PLC (LON:AVV) is also poised to take its place among the blue-chip big boys after a strong performance in its last financial year, the first since agreeing to merge with the software arm of French energy group Schneider Electric in late 2017, which created a £3bn company.
In the year to the end of March 2019, the combined entity delivered a 11.9% increase in revenue to £775.2mln and a 19.8% rise in adjusted earnings (EBIT) to £184.5mln which helped boost its shares price to put it on the cusp of blue chip status..
The latest quarterly index reshuffle will be announced by FTSE Russell after the London market close on Wednesday, but will be based on Turesday's closing share prices.