International Consolidated Airlines Group (LSE:IAG) has started 2023 with a bang. The airline company was one of the pandemic’s biggest losers, due to the crippling effects of global travel restrictions and quarantines on its business. However, IAG shares have advanced 26% so far this year as passenger numbers recover.
But there’s still a long way to go. Before Covid-19 decimated travel demand, the IAG share price stood at £4.35. Today, the stock is changing hands for £1.62.
So, what’s the outlook for the company and is IAG one of the best FTSE 100 stocks to buy at present? Here’s my take.
Flying higher
The company’s Q1 results saw the business deliver its first positive outcome for a first quarter since 2019. IAG turned an operating profit of €9m, which represents a €750m year-on-year increase from the loss it posted in 2022.
The group, which owns Aer Lingus, British Airways, Iberia, and Vueling, said it experienced “strong demand” across all airlines.
Positive trading activity has boosted the company’s confidence in its full-year forecast. It now expects profit will be above the top end of its previous predictions and an almost complete recovery in passenger numbers with capacity reaching 97% of 2019 levels.
Priorities for the year include a focus on capacity in its core Latin America and North Atlantic markets, as well as growing Vueling’s year-round leisure network.
Indeed, leisure travel has proved to be particularly important for the group’s nascent recovery. I’ll be watching the firm’s results over the crucial Northern Hemisphere summer period with keen interest to see if the strong performance can be maintained. Early signs are encouraging with around 80% of expected Q2 revenue now booked.
Grey skies
However, it’s too early to pop any champagne corks just yet. Net debt remains a big concern. Although this figure has improved 19% year on year, at €8.4bn it’s still uncomfortably high. As global interest rates march higher, the costs of servicing this debt could rise.
Plus, for investors seeking passive income, the weak balance sheet suggests it could take a while before the company reinstates its dividend, which was last paid to shareholders in 2019.
In addition, demand for business travel remains sluggish. The growing popularity of virtual conference calls as a way to conduct international business means regular face-to-face meetings could be a thing of the past.
There’s also the added headwind of increasing scrutiny of companies’ carbon footprints, which makes transcontinental flights harder to justify given their substantial environmental impact.
A FTSE 100 stock to buy?
IAG shares face clear risks. The path to a sustained recovery won’t be easy. But I think that’s largely priced in at today’s beaten-down valuation.
The stock trades at a forward earnings multiple of just 6.5 for 2024. That looks cheap to me, especially if leisure travel continues to rebound at pace.
Overall, I like the company’s risk/reward profile. Another set of strong results could send the share price soaring. Provided all goes to plan, I think it has the potential to grow faster than many of its FTSE 100 counterparts. If I had spare cash, I’d invest today.
