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Sydney Airport far from terminal

Investors in Sydney Airport (ASX: SYD) enjoyed a steady ascent to $3.84 since it last hit some turbulence, dropping in the new year to $3.04. Now it’s losing altitude again, will that descent continue or is it close to levelling out?

With it’s close yesterday at $3.39, a 1.74 per cent fall almost three times bigger than the S&P ASX 200 (ASX: XJO), you’d think it may keep going in a falling market. But just as you can expect the market to rebound, you can expect Sydney Airport to rebound with it; the question is just how much?

With its 6.4% yield and near monopoly ownership of our busiest airport, Sydney Airport has had little trouble outsripping its Transport industry peers  since it was spun off from Macquarie Airports four years ago. But that price fall early January was the start of it underperforming the market by a widening margin that only started closing mid-March and was not overhauled until a month ago.

Since that 52-week high price on May 22, and its annual general meeting presentation a week before, Sydney Airport has been tracking the market down, but doing no worse. Its master plan to double airport traffic over the next 20 years wasn’t that well received, nor its downgraded estimate of international and domestic passengers numbers.

Sydney Airport looked overvalued when it took off a few weeks ago with investors seeing it as a solid business and great yield play, but it’s now diverged markedly through its simple moving average for the first time since January. It would seem oversold at levels around the $3.20 Morningstar has set as its intrinsic value. Depending on current market state, it’s worth looking at in the $3.20-$3.40 range.

Foolish takeaway

If you are a youngish investor, there are risks in thinking Sydney Airport has a permanent place in your portfolio. But if you’re older, or looking more to the short to medium-term, the compnay being that quickly affected by the perennial talk of a second Sydney airport should be as worrying as more fantasies of a fast train up the east coast. A huge blow to tourism would be worse.

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Motley Fool contributor Andrew Ballard owns shares in SYD. 

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