The IAG (LSE:IAG) share price has underperformed in recent years, but its potentially the most highly rated stock on the FTSE 100 by City and Wall Street analysts.
The British Airways owner currently has six Buy ratings, four Outperforms and five Holds. The average share price target of 230p’s a staggering 42.8% above the current share price.
And the airline’s H1 results, released on 2 August, have provided some momentum, pushing the stock ever so slightly closer to its share price target.
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Beating results
IAG’s delivered impressive results for the first half of 2024, reporting an 8.4% increase in sales to €14.7bn and a profit before tax of €905m. Operating profit remained strong at €1.24bn, marginally exceeding expectations.
The airline announced a return to dividends with a ¢3 interim payout, reflecting confidence in the company’s post-pandemic recovery. Free cash flow — vital for dividends — surged to €3.2bn, and liquidity improved to €9.7bn.
However, IAG withdrew its bid for Air Europa, citing regulatory concerns. CEO Luis Gallego emphasised robust demand in key markets, positioning IAG well for continued success in the travel sector.
The market’s evidently impressed. The stock was up over 3% in early trading, representing one of the only stocks to be ‘in the green’ on the European indexes on Friday (2 August).
If it wasn’t for the broader market sell-off, the stock could be up potentially 6-10%.
Why should I be bullish?
The airline group’s benefiting from robust post-Covid travel demand, particularly in key markets such as the North Atlantic, Latin America, and intra-Europe.
Analysts have noted that capacity growth is supportive of pricing both in the near and medium terms, with strong fare data in the North Atlantic and other regions.
Falling interest rates could also boost discretionary spending, further supporting travel demand. Additionally, IAG’s been improving its seat capacity, which is now nearing pre-pandemic levels, enhancing its ability to meet rising demand.
However, risks remain. The airline industry’s highly cyclical and sensitive to economic downturns, inflation, and geopolitical tensions.
Additionally, regulatory hurdles, such as those that led IAG to withdraw its bid for Air Europa, could pose challenges.
Despite these risks, IAG’s attractive valuation and clear path to earnings upgrades make it a promising investment.
The stock’s trading at just 4.2 times forward earnings for 2024. This figure falls to 3.8 times in 2025 and 3.7 times in 2026.
This is phenomenally cheap compared to the index as a whole, but also compared to its US-listed peers, including Ryanair.
The bottom line
The IAG share price has pushed upwards towards its target but still remains vastly undervalued, according to analysts.
It’s very cheap compared to US-listed peers and the business is performing well, with expectations for growth across the medium term.
I’ve been looking closely at buying more of this stock for my portfolio. I certainly don’t think it’s too late.
