230p? These broker forecasts indicate the IAG share price could fly

Jon Smith takes a look at the current forecasts for the IAG share price and shares some fundamental reasons why they could be correct.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The International Consolidated Airlines Group (LSE:IAG) has been performing well recently. Over the past two years since we’ve come out of the pandemic, the IAG share price is up 49%. Even though only 8% of this has come from the past year, the current broker forecasts are looking for further gains. Here’s why I think that could become a reality.

Running the numbers

For reference, the current share price is 170p. Broker and bank forecasts usually detail the price level target for the next 12 months. From this, I can get a good indication of what professional analysts are thinking right now.

RBC Capital Markets have a current price target of 230p. This is the same forecast as Bank of America, with Deutsche Bank slightly lower at 215p. The team at J.P. Morgan have a target of 207p.

From this bunching of forecasts, it’s clear to me that the consensus is for a move above 200p to be seen over the next year. Let’s say that we take 200p as a starter. In this case, the stock would need to rally about 18% to reach this. For 230p, it would have to increase by 35%.

As a disclaimer, these are just forecasts. Predictions have been wrong before and they shouldn’t be trusted as fact.

Reasons to support the forecasts

Both of those percentages are large, although based on past performance, they aren’t out of the question. There are a couple of reasons why this target could be realistic.

One is the continued bounce back of financial results. In the latest Q1 results, all the major airlines within the group helped to boost operating profit from €9m in Q1 2023 to €69m last quarter. British Airways added an extra €9m to the pot which I think is really key. The long-haul, more expensive option is clearly coming back in fashion. This bodes well for the future.

Another reason is the outlook going forward. The report commented that it “continue(s) to expect to generate significant free cash flow and maintain a strong balance sheet”. This helps to reduce net debt, which is now just 1.3 times EBITDA. This is a big progress from the pandemic years, when debt spiralled higher. With a stronger balance sheet and lower debt expenses, it should allow the business to increase profitability.

Balancing things out

On the other hand, I do acknowledge that even though we’re out of the pandemic, the cost-of-living crisis is still impacting consumers in the UK and Europe. Inflation is now only starting to hit the target levels. This means that going forward, people might pull back on discretionary spending on overseas flights. This is a risk for the business.

Let’s not forget though that the growth stock was trading above 400p just before the pandemic crash hit us. So even a move back to 230p isn’t exactly pushing above all-time highs! I think that the brokers forecasts are reasonable and so am thinking about adding this stock to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jon Smith 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.

More on Growth Shares

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

After crashing 50% and 41%, are these FTSE growth stocks now unmissable bargains?

Paul Summers looks at two FTSE growth stocks currently hated by the market. Might this be a wonderful contrarian opportunity?

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Should I invest today or wait for a stock market crash?

Does it make sense to keep buying shares or save cash for a stock market crash? Our writer thinks there's…

Read more »

Investing Articles

2 stunning FTSE dividend growth shares down 25% and 27% I’ll buy and hold forever

Harvey Jones has identified two exciting FTSE 100 growth stocks that pay dividends on top. But why have they done…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

2 picks that could supercharge a Stocks and Shares ISA

Investing in a Stocks and Shares ISA can bring spectacular returns. But the most important thing for investors is working…

Read more »

Investing Articles

Nvidia shares are soaring! Could this AI stock be a better buy?

Demand for Nvidia shares continues to grow and grow. But might this cheaper AI stock be a superior way for…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Is NIO stock due a recovery?

NIO stock has been on a bumpy road for a number of years, but as use of electric vehicles continues…

Read more »

Investing Articles

These FTSE 100 stocks recently hit 52-week highs! Would I be crazy to buy now?

Our writer has spotted three FTSE 100 stocks recently setting 52-week highs. Could there be more to come or should…

Read more »

Investing Articles

Now the Rolls-Royce share price is down 8% from its 52-week high, what next?

The Rolls-Royce share price climbed magnificently in 2023. And so far this year, it's just kept on up. What about…

Read more »