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It’s been a volatile period for the stock market, with the conflict in the Middle East driving a sharp energy spike and disrupting companies that trade in the region. Airlines are in one sector that has been particularly hard hit. In fact, I think some of the stocks in the sector can now be considered value stocks. Here’s one I’m checking out today.
A hit from fuel prices
I’m talking about easyJet (LSE:EZJ). Over the past year, the share price is down 34%, with the bulk of the move coming in 2026 so far. A major factor has been the spike in fuel prices, driven by higher oil prices. In fact, the half-year update last month showed £25m of additional fuel costs due to the Middle East conflict, contributing to a much wider-than-expected loss. At the same time, wages and other operating costs have remained elevated, also hampering profit margins.
Given that fuel is such a significant contributor to the company’s operations, it’s clearly a significant risk going forward. However, I don’t think it would take much for the stock to get back to levels seen at the start of the year.
The case for a rebound
For starters, demand is still very much alive. Summer bookings are strong, and the airline continues to benefit from resilient leisure travel trends across Europe. More importantly, easyJet Holidays is doing very well, with customer numbers increasing by 22% in H1 compared with the same period last year. It’s becoming a major profit engine and offers higher margins than the core airline business. This means that even if fuel prices remain elevated, the stock could still rally, with more diversified revenue streams.
However, the main reason I think the stock could climb back to January levels is a resolution in the Middle East. The conflict has stalled, with a ceasefire in place and a lack of desire from all sides to escalate (in my view). I struggle to see the global supply chain route through the Strait of Hormuz not operating at full capacity for much longer, as it damages all sides.
If this proves correct, fuel prices should fall as oil moderates, helping reduce easyJet’s costs almost overnight. Given that this is the largest factor negatively impacting the share price this year, I think the stock could trade back to the levels seen in early January at 522p, before the conflict began. From the current price of 366p, this would be a 43% increase. Based on a £2k investment, this could be worth £2,860.
Weighing it up
Of course, my subjective view on a war resolution could be wrong, which is the biggest risk to a rally in the easyJet share price back to the levels seen pre-conflict. However, even if the stock doesn’t climb 43%, I do believe it’s cheap. The price-to-earnings ratio is 5.17, well below the fair-value benchmark of 10 I use. Therefore, with a Foolish long-term investment outlook, I do think it’s a stock for investors to consider.
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