IAG Stock-This Broker’s Bold Prediction: IAG Share Price Might More Than Double

IAG Stock-In 2024, analysts are increasingly optimistic about the future of International Consolidated Airlines Group (IAG), the parent company of British Airways. With the travel industry rebounding strongly, the IAG share price has already surged by 13% this year. According to a recent report by Liberum, the brokerage has set a target price of 450p for IAG shares, reflecting a potential doubling from current levels. This bullish outlook comes on the back of impressive financial performance and a promising demand outlook.

Record-Breaking Profits and Positive Forecasts

The catalyst for this optimistic forecast was IAG’s announcement of a record £3 billion annual operating profit in February, more than double the previous year’s figure. This remarkable performance highlights the resilience and growth potential of IAG amidst a recovering travel sector. Gerald Khoo, an analyst at Liberum, emphasized that despite the firm’s historically low stock rating, the company’s previous high returns and the current favorable demand/supply dynamics suggest significant upside potential.

Liberum’s recommendation reflects a broader belief in the company’s long-term earnings potential. The brokerage argues that current stock prices imply mid-cycle earnings 60% below 2023 levels—an anomaly not seen since 2013. This discrepancy underscores the market’s underestimation of IAG’s recovery trajectory and profitability.

Travel Demand and Strong Returns

The resurgence in travel demand post-pandemic has played a crucial role in boosting IAG’s stock performance. The rebound from Covid-era lows has been dramatic, and demand for air travel shows no signs of abating. IAG’s strong pre-pandemic performance and its ability to capitalize on the ongoing travel boom provide a solid foundation for future growth. The company’s high returns on invested capital (ROIC) and robust balance sheet further support the optimistic projections.

Liberum also notes that IAG is poised to resume dividend payments, a significant shift after a hiatus during the pandemic. In 2024, the company is expected to pay a dividend of 2.6p per share, with forecasts suggesting an increase to 4.8p per share in 2025. This return to dividends is likely to attract more investors, reflecting confidence in IAG’s financial health and future profitability.

Upcoming Results and Potential Market Catalyst

IAG’s first-quarter results, scheduled for May 10, could serve as a catalyst for further re-rating of the company’s shares. The results will provide more clarity on the company’s performance and future prospects. Positive results could reinforce the bullish outlook and drive the stock price higher.

The company has reported that demand remains robust and that bookings for the first half of the year are already ahead of last year. Additionally, IAG has managed to reduce its debt from €10.4 billion to €9.2 billion, alleviating a major concern for investors. The expected capacity growth of around 7% in 2024 further supports the positive outlook.

Industry Challenges and Risks

Despite the positive outlook, there are significant headwinds facing IAG and the broader aviation industry. Potential macroeconomic downturns could lead to reduced consumer spending on travel, impacting demand. Ongoing supply chain issues for major aircraft manufacturers, such as Airbus and Boeing, are also causing delivery delays, which could affect IAG’s operational efficiency.

Moreover, geopolitical tensions have led to increased oil prices, with Brent crude recently jumping to $90 a barrel. Rising fuel costs could strain IAG’s profitability, although the company’s hedging strategies should mitigate some of the impact. The war between Israel and Hamas has already caused share price declines across the industry, including a more than 3% drop in IAG’s stock.

Annual increases in fuel, oil costs, and emissions charges amounted to €1.4 billion in 2023, but IAG’s hedging strategies are expected to cushion the blow if oil prices continue to rise.