The Webjet Limited (ASX: WEB) share price has continued its disappointing run and is the worst performer on the S&P/ASX 200 index on Monday morning.
At the time of writing, the online travel agent’s shares are down 4.5% to $10.89. This latest decline means its shares are now down almost 37% from their 52-week high.
Why is the Webjet share price sinking lower again today?
Investors have been hitting the sell button again today after the embattled company was the subject of a reasonably bearish broker note out of Credit Suisse.
According to the note, the broker has downgraded Webjet’s shares from an outperform rating to neutral and slashed the price target on them by 21% to $11.00.
The broker made the move in response to the Thomas Cook collapse and the worrying trend of earnings downgrades.
Credit Suisse notes that the Thomas Cook collapse led to unpaid receivables of €27 million, which equates to a significant portion of its B2B earnings in FY 2019. It feels this is a reminder of the credit risks involved with its WebBeds business.
In light of this and its conservative outlook for the B2B business, the broker has reduced its earnings forecasts by around 10% per annum in both FY 2020 and FY 2021.
It now expects Webjet to achieve earnings per share of 70.4 cents this year and then 76.3 cents next year. Which means that the company’s shares are currently changing hands at a little over 15x estimated full year earnings.
Should you buy the dip?
Whilst I think that the broker makes some fair points, I’m optimistic that the Thomas Cook collapse was an isolated case and expect Webjet to move on from this now.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia owns shares of and has recommended Helloworld Limited. The Motley Fool Australia has recommended Serko Ltd and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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