British Airways owner IAG lures upbeat calls as travel rebounds

Analysts are scrambling to raise their stock price targets on British Airways-owner IAG SA, turning the most bullish in nearly two years amid a bounce in air travel.  

Over the past month, at least nine analysts boosted their expectations for the share performance, with Liberum analyst Gerald Khoo predicting a 133% rally in the next year. That’s taken the average expected returns on IAG to 29%, while the ratio of buy-equivalent ratings has hit the highest since August 2021.

The deluge of upgrades follows IAG raising its full-year earnings outlook and highlights the airline industry’s rapid bounce from the depths of the pandemic slump. Sliding oil prices are also helping the industry. 

“Outlook for the year is looking increasingly promising as leisure demand remains strong and cost performance is improving, driving further upgrades for both this year and next,” Morgan Stanley analyst Conor Dwyer wrote in a note to clients. Dwyer has an equal-weight rating on the stock.

The International Air Transport Association said March 2023 air traffic was at 88% of 2019 levels. Beaten-down stock prices, cheap valuation, and travel rebound are central to the bullish thesis by analysts.

Airlines are far from fully recovering from declines spurred by Covid-19 restrictions. Even at Liberum’s price target of 350 pence, the most bullish among analysts tracked by Bloomberg, IAG would still trade below pre-pandemic levels — such has been the rout and disruption to the industry.

Peel Hunt’s Alexander Paterson noted a robust rebound in demand while a slower turnaround in capacity to pre-pandemic levels. He upgraded IAG to buy from hold, saying fuel costs and currency moves were favorable.