Wizz Air (LON: WIZZ) shares closed Tuesday’s session up just over 2% despite the stock being initiated with a Sell rating.

Liberum analyst Gerald Khoo initiated coverage of Wizz Air with the bearish rating and a 2,200p price target. 

Given the carrier’s rapid growth and the strong demand for air travel, the bearish rating is somewhat surprising. 

Khoo told investors in his note that the countries targeted in the airline’s “Go East” strategy have less extensive diaspora networks, and he believes they are “less-competitive but less-attractive markets,” with smaller visiting friends and relatives travel potential…

In fact, he was more scathing, stating: “Strategy going east, value going south.”

The analyst also noted that Wizz’s high leverage means interest rate hikes will erode value, with the market “overlooking the impact of higher interest rates on future aircraft ownership costs, as well as the significant uplift to lease liabilities.”

Finally, Khoi believes the low-cost carrier’s “vulnerability to competition” against carriers such as EasyJet and Ryanair shouldn’t be forgotten.

Wizz Air shares are currently up 44.5% in 2023, trading at around 2,712p per share.

By Sam Boughedda