Wow! IAG shares are undervalued by 47%, according to analysts
International Consolidated Airlines’ (LSE:IAG) shares are now up 45% over 12 months. That might sound good, but the stock’s actually pulled back significantly from its highs.
What’s more, analysts’ target prices have continued to grow, with the average share price target now being 47% above the price, at the time of writing — 260p. Is this an unmissable opportunity to buy?
What’s behind the pullback?
IAG shares have pulled back recently due to a combination of operational disruptions and broader economic concerns. The closure of Heathrow Airport on 21 March, caused by a fire at a nearby electrical substation, led to significant flight cancellations and disruptions.
British Airways, IAG’s flagship carrier, was particularly affected, with analysts estimating the financial impact could reduce the group’s earnings by 1-3% this year. This incident highlighted IAG’s reliance on Heathrow as its primary hub.
Additionally, economic uncertainty has weighed heavily on the airline sector. Rising fears of a recession in key markets like the US and UK have dampened demand for transatlantic travel, which is crucial for IAG.
North Atlantic routes accounted for nearly 31% of its capacity in 2024. And weakening US demand has raised concerns about future revenue growth. Political and cultural shifts affecting inbound US tourism have further exacerbated these challenges.
While IAG’s benefitted from the post-pandemic recovery and disciplined cost management, these recent trends have overshadowed its strong financial performance in 2024. The combination of operational setbacks and macroeconomic pressures has driven the recent decline in its share price.
Analysts are still very bullish
Analysts remain bullish on IAG shares despite recent volatility. The mean consensus among 17 analysts is an Outperform rating, reflecting confidence in the stock’s potential to deliver returns above market averages.
The average 12-month price target stands at £3.97, representing a 47.8% upside from the last closing price. Optimistic forecasts go as high as £5.27, nearly doubling the current share price, while the lowest target of £1.77 still implies significant divergence in opinion.
However, this broad optimism is supported by IAG’s strong financial performance, strategic capacity management, and robust transatlantic travel demand, which continue to underpin its growth prospects.
Looking beyond 2025
Analysts are always trying to anticipate where a business will be in the future. Things might look a little more challenging now, but there are long-term supportive trends. These include resilient post-pandemic demand for leisure travel and Trump’s desire to keep fuel prices low throughout his presidency.
That latter point is particularly important as fuel costs represent 25% of operating costs. Incidentally, jet fuel prices are currently the lowest they’ve been since Russia’s war in Ukraine.
So while there are near-term risks, namely Trump’s tariff impact and the earnings impact of the Heathrow shutdown, the long-term picture’s fairly bright. And at five times earnings, it’s cheap.
Not as cheap as my sector favourite, Jet2 which trades a 1.1 EV-to-EBITDA, but it’s still attractive. If I wasn’t building my position in Jet2, I’d buy more IAG at the current price. It looks like a good entry point to consider.
The post Wow! IAG shares are undervalued by 47%, according to analysts appeared first on The Motley Fool UK.
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More reading
- Down 25% in a month, but experts forecast the IAG share price is set for a mega-rally!
- Here’s why the IAG share price fell 26% in March
- 2 reasons why I’m avoiding cheap IAG shares in April!
- At a P/E multiple of 6, is this FTSE 100 stock a no-brainer buy to consider in April?
- FTSE shares: an opportunity to secure generational wealth?
James Fox has positions in International Consolidated Airlines Group and Jet2. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
