International Consolidated Airlines Group (LSE: IAG) shares have climbed a rocket-fuelled 126% over the past year. They’re still powering on, up 12% in the last month. Yet despite that rapid rise, they trade at a modest price-to-earnings ratio of just 7.86. That’s barely half the FTSE 100 average of around 15.
I bought the British Airways owner back in April, just after Donald Trump announced his tariff pause, and I’m thrilled I did. But after such a strong run, are they still worth considering today?
I watched for years as IAG, as it’s known, struggled with post-Covid recovery, mounting debt and soaring fuel bills. The turnaround’s been remarkable.
Momentum stock
After rocketing, it’s likely to slow. Analysts seem to think so. The 24 covering this stock have produced a median price of 408.4p. That’s up just 10% from today’s 361p. That sucks out some of the excitment surrounding the stock but is understandable after such a big bounce.
Another word of caution. Airline stocks are prone to volatility, over-reacting to everything from oil prices and political shocks to industrial disputes and natural disasters. Investors know that when sentiment turns, IAG is likely to swing harder than most. A bit of nervousness here isn’t irrational.
Still, I think the longer-term outlook remains attractive. JP Morgan certainly seems to agree. In a 14 July note, it flagged IAG as one of its top picks across Europe’s airlines, placing it on a “positive catalyst watch” for the second half of the year.
JP Morgan also singled out IAG’s strong transatlantic exposure and premium pricing power as key differentiators. It even nudged up 2025 earnings estimates by 3%, partly on the back of lower fuel prices. Of course, if fuel prices rise things could turn out differently.
Growth and some income
While IAG’s trailing yield is still on the low side at 2.07%, forecasts suggest that will rise to 2.57% this year and 2.95% in 2026. That’s not huge, but it’s going in the right direction. Given how badly the pandemic knocked airline dividends, it’s encouraging to see a return to shareholder payouts.
The company’s also returning cash via share buybacks, having completed €530m worth so far, on top of €435m in dividends. With debt down to €6.9bn and expected to slide to €5.4bn next year, the board has a little breathing space. But it still has to invest heavily to improve its fleet, and the capital expenditure could weigh on returns.
Decent value
It’s true that this is a cyclical and often risky sector. Share prices can turn sharply, and nobody can predict when the next bout of market volatility might land. But that low P/E still leaps out at me. I’m not expecting a return to 15 times earnings any time soon, but even a partial re-rating would be welcome.
For long-term investors with patience and the ability to ride out occasional setbacks, I still think this is an opportunity to consider. Although I accept that, at some point soon, the growth will have to slow.
