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Where will the IAG share price go in October?

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British Airways
Image source: British Airways

International Consolidated Airlines (LSE: IAG) shareholders have enjoyed a bullish spell these past few weeks. Though they’ve doubled in the past 12 months, the shares are still down 58% over two years. But the IAG share price has picked up 40% since mid-September.

Where might it go in October? And what will I do? I think the factors propelling it upwards could continue into the current month. Though I do see some adverse issues offering some drag on progress.

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The UK’s red/amber/green traffic light system for aviation destinations came to an end Monday. The amber list has been scrapped, and there’s simply a list of prohibited countries now. And even with red-list destinations, some rules are being eased for travellers with appropriate vaccinations.

These changes should make flying a good bit easier. And cheaper too, if they reduce the number of flyers having to spend 10 days in hotel quarantine. So yes, that’s a key move that should help airline stocks. Combine the move with the USA’s loosening of transatlantic flight restrictions, and I can see IAG share price buoyancy in October.

Value trap?

My Motley Fool colleague Rupert Hargreaves has examined the dangers of a possible value trap at the British Airways owner. We get that when a stock has fallen and we assume it will recover, but its profit potential has been permanently damaged. Rupert doesn’t think that’s the case here, and neither do I.

I can see IAG getting back to 2019 flying profits. It might take until late 2023 or even early 2024, as Boeing has recently suggested, but that’s fine by me. And I reckon the long-term profit potential could be another bullish influence in October.

Balance sheet good

IAG has assured us it sees no need for any further rights issue. So no more cash needed, and no more dilution. That’s got to be good news for the IAG share price too. Oh, and the UK economy is bouncing back quicker than expected.

What are the downward pressures? I know we keep saying this, but Covid-19 hasn’t gone away. Should we see any more outbreaks, or simply variants, the red list could quickly expand. Oh, and we’re getting into the winter flu season too, which won’t help.

Our economic outlook is also far from certain. We enjoyed growth of 5.5% from April to June, above forecasts for 4.8%. And the economy is 3.3% smaller than before the pandemic, which I think is not too bad. But we don’t yet know how much will prove to be a short-term rebound from the easing of lockdowns.

IAG share price valuation

I’ve left the biggest bearish influence, at least as I see it, until last. It’s valuation. On an enterprise valuation, which accounts for net debt as well as the firm’s market cap, IAG isn’t really any cheaper now than it was before the crisis. It’s very similar, in fact. And shouldn’t a company have a lower valuation when it’s doing less well? I think so.

Still, I expect valuation issues will have a longer-term effect. And I wouldn’t be at all surprised to see the IAG share price end October higher than it is now. But the valuation does still keep me from buying.

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Alan Oscroft has no position in any of the shares mentioned. 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.

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