For me, the IAG (LSE: IAG) share price will go down as the one that got away in 2024. I’ve circled the stock repeatedly over the last 12 months, but never screwed up the courage to hop on board.
With hindsight, I wish I had, given that IAG shares are up a staggering 81.58% over the last 12 months. That makes the British Airways owner the FTSE 100‘s fifth-best performer.
On 29 November 2023, I wrote that IAG shares looked “ridiculously cheap, trading at just 3.8 times forecast 2023 earnings”. As a lover of cheap shares, I was sorely tempted. So what held me back?
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Can this FTSE 100 recovery stock keep going?
The first hurdle was its huge net debt. It stood at a whopping €11.6bn, a legacy of the pandemic, when fleets were grounded and it had to borrow hard just to stay alive.
IAG hadn’t paid a dividend since Covid struck and while CEO Luis Gallego had pledged to resume shareholder payouts once its balance sheet and investment plans were “secure”, he didn’t set a date.
I could see IAG’s potential, even then. Q3 operating profits had just jumped 43.5% year on year to €1.75bn with flights at 95.6% capacity.
But I made my choice and it’s turned out to be the wrong one. Here it is, in its full glory: “Sorry, but I’m not convinced. IAG remains exposed to oil price uncertainty, economic worries and geopolitical tensions, and there’s no dividend to compensate.”
That sound you can hear is the hollow laughter of my pitiful self-loathing.
The world is merrily flying again, notably in IAG’s core North Atlantic, Latin America, and intra-Europe markets. Revenues and profits are rising, while IAG is managing costs with greater discipline, helped by leveraging efficiencies across its various brands, which include Iberia, Aer Lingus and Vuelo, as well as BA. And it’s been given a further boost by the falling oil price.
But has it flown too far too fast?
First-half profit before tax, published on 2 August, smashed forecasts landing at €909m. With free cash flow hitting €3.2bn, Gallego announced he was restarting dividends. IAG’s forecast yield is 2.99% in 2025. Not bad for starters.
IAG shares still look good value to me, with a price-to-earnings ratio of 6.74. That’s less than half the FTSE 100 average of 15.1 times.
There are still risks. While the US economy looks healthy, Europe’s doesn’t. And airlines will forever be vulnerable to geopolitical threats, natural disasters, and economic downturns.
IAG still owes a hefty €7.77bn. That’s forecast to fall to €6.97bn in 2025. It’s being paid off faster than predicted. But my biggest concern is that I’m coming to the party too late. The recovery is priced in.
Twenty-five analysts have set one-year share price targets for IAG, and the median figure is 295.3p. That’s up just 3% from today.
It’s bad enough that I failed to buy the shares a year ago. I’d feel an even bigger chump if I belatedly dived in just as they reversed. Happily, I can see plenty of other FTSE 100 stocks I’d like to buy right now. Maybe this time I’ll actually buy them.
