The International Consolidated Airlines Group (LSE: IAG) share price had a tough start to 2024, falling almost 10% during the first two weeks of the year. However, during the past week, the stock has managed to recuperate these losses, rising over 7% at the time of writing. Is this a trend I think can continue throughout 2024? And if so, should I be looking to buy this UK airline stock today? Let’s take a closer look.
A tough few years
International Consolidated Airlines has largely managed to bounce back from its pandemic losses, experiencing an 18% increase in revenues and a 44% rise in net profits in Q3. Net profit margins also expanded by over 22%, which is a great sign. That being said, this reversal has not been reflected in the share price, which still sits around 65% lower than its February 2020 price of 430p.
Management has also taken steps to reduce its large debt pile, which it was forced to take on during the pandemic standstill in travel. In its last results, net debt had reduced to just over €8bn, a reduction largely driven by improved cash flows. This marked a decline from €10.4bn the previous year.
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Another reason why its shares have struggled to gain momentum since the pandemic is due to high fuel costs. The Russia-Ukraine conflict, coupled with soaring global inflation sent oil prices sky-high in 2022, at over $120 a barrel. This was bad news for International Consolidated Airlines Group, as oil makes up 25% of its total costs.
Currently sitting around $75 a barrel, analysts estimate this figure to rise slightly to $80 by the end of 2024. It should be noted that International Consolidated Airlines has hedged 65% of fuel for Q4 2023, 58% for Q1 2024, 49% for Q2 2024, and 39% for Q3 2024. This mediates my worries about rising costs in the future.
Valuation perspectives
The shares currently trade on a price-to-earnings (P/E) ratio of just five, which looks like good value to me. Competitor easyJet trades on a much higher P/E ratio of 12. Also, the FTSE 100 trades at an average P/E ratio of 14. These two indicators tell me that International Consolidated Airlines could be undervalued.
The company has not paid a dividend since before the pandemic. However, this could be changing in 2024. The airline company is anticipated to pay a full-year dividend of 3.3 cents per share in 2024. Based on the current price, this would represent a yield of 2.2%. While this is good news for shareholders, this figure remains below the FTSE 100 average yield of 3.9%.
Is now the time to buy?
For me, International Consolidated Airlines Group looks like a solid stock. It seems well priced, and is starting to deliver solid results after being decimated by the pandemic. However, for me, nothing special jumps out that makes me want to buy the shares. Yes, they appear to be cheap, but I think there are much better value stocks in the FTSE 100 at the moment. For this reason, I am sceptical that the stock will take off in 2024, and therefore I won’t be buying any of its shares today.
