Performance dragged down by multiple factors, short sellers target European budget airline Wizz Air (WZZAF.US)

As consumers cut back on spending and the outlook for the travel industry weakens, short sellers are betting that the situation for the low-cost airline Wizz Air Holdings (WZZAF.US) will be worse than its European counterparts. The latest data from S&P Global, Inc. Market Intelligence shows that 13% of Wizz Air Holdings' outstanding shares are shorted, compared to less than 1% for its competitors easyJet (ESYJY.US) and Ryanair (RYAAY.US). There are several reasons why Wizz Air is being shorted, including the company carrying much more debt than its competitors, its Airbus planes experiencing engine issues, and its routes mainly serving Eastern Europe, with close proximity to conflict-ridden Ukraine. Due to the impact of an August profit warning, Wizz Air's London-listed stock has already dropped by 41% this year. Some analysts suggest that considering price competition among airlines, the stock is likely to see further declines. Citigroup analyst Sathish Sivakumar said, "There is a lot of uncertainty about whether Wizz Air can achieve its full-year targets." He has had a "sell" rating on Wizz Air since last October. Wizz Air is one of the airlines most affected by aircraft engine problems. Due to uncertain aircraft availability, Wizz Air has leased planes to maintain its flight schedule, which has reduced its profits. Analyst Gerald Khoo from investment bank Panmure Liberum stated that Wizz Air is also impacted by price wars, with Ryanair predicting ticket prices could further decline. Additionally, Wizz Air's debt is a concern, as Khoo noted, "The biggest difference between Wizz Air and Ryanair and easyJet is leverage." Data shows that Wizz Air's net debt is equivalent to 4.6 times its annual earnings, while Ryanair and easyJet have net cash, giving them much greater financial flexibility. Meanwhile, investor preference for Wizz Air's competitors is reflected in their valuations. Ryanair and easyJet have price-to-earnings ratios of 10.7 and 7.6 respectively, while Wizz Air's ratio is 5.3. Analysts generally favor Ryanair and easyJet. Overall, analysts remain optimistic about Wizz Air, with 9 "buy" ratings, 10 "hold" ratings, and 5 "sell" ratings; the average target price is 1982 pence, indicating a 51% upside in the next 12 months. RBC Capital Markets analyst Ruairi Cullinane expects Wizz Air to improve its profit margin to pre-pandemic levels. He believes that if the company can restore capacity growth and have a more favorable fleet mix, this goal could be achieved in the 2026 fiscal year. However, he added that Wizz Air's profit forecast for this fiscal year ending in March may be at the lower end of the guidance range, posing risks. He rates Wizz Air as "outperform the market" and forecasts the stock price to double next year. It is worth mentioning that Wizz Air CEO Jozsef Varadi said last week that the company has been taking measures to increase profits, including launching long-haul low-cost flights to Saudi Arabia next year.