Today I am outlining why International Consolidated Airlines Group (LSE: IAG) could be considered a terrific stock for growth hunters.
It’s not all about the discount flyers
The rising popularity of budget airlines such as Ryanair and easyJet in the post-recession world has seen many a broker turn their nose up at legacy carriers such as International Consolidated Airlines.
With both leisure and business customers warming to the prices of cost-conscious airlines, boosted by an ever-growing airport network across Europe, fears abound that the British Airways and Iberia operator and its premium peers will fail to keep pace.
But in my opinion International Consolidated Airlines is still in great shape to deliver stunning earnings growth in coming years, and latest traffic data showed that the firm’s more expensive services remain a winner with customers. In August the group saw total capacity rise 8.7% from the corresponding 2013 month, while premium traffic rose by the same percentage.
Meanwhile, International Consolidated Airlines is currently undergoing an extensive reshaping programme — particularly at its Spanish subsidiary — with new pay and productivity deals brokered in the spring set to boost earnings.
Furthermore, the company’s cost base is also set to benefit from the roll-out of fuel-efficient Airbus and Boeing aeroplanes over the long term. Just this week International Consolidated Airlines announced that it was converting options to buy a further eight Airbus A330-200 planes for Iberia, and took out options to buy another 10 A330s.
Strapped in for take off
In the midst of a challenging trading environment, International Consolidated Airlines has seen earnings performance oscillate wildly in recent years. The company has swung into the losses column twice in the past five years, but City analysts expect last year’s swing back into the black — to 21.25 euro cents per share — to herald a period of prolonged earnings growth.
Indeed, International Consolidated Airlines is anticipated to punch sky-high expansion to the tune of 87% in the current year to 39.7 cents. And an extra 48% advance, to 58.9 cents, is predicted for the following 12-month period.
And these projections mark the airline out as a bona-fide bargain, in my opinion. For this year the company changes hands on a P/E multiple of 12.3 for this year, and which collapses to 8.3 for 2015 — any reading below 10 is generally considered spectacular value for money.
