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Why International Consolidated Airlines Grp, Thomas Cook Group plc And Compass Group plc Could Make A Nice Holiday Package

Airline shares have done very well over the past couple of years, with International Consolidated Airlines Group (LSE: IAG), the group behind British Airways and Spain’s Iberia, gaining 23% over the past 12 months to 554p, and nearly trebling since late 2012.

The company, currently attempting a takeover of Aer Lingus, has been recovering well since recording a loss in 2012, and for the year to December 2014 reported an 8% rise in revenue — and lower fuel costs helped it back to pre-crisis levels of earnings. There was no dividend yet, but there’s a return expected this year with a modest 1.7% yield forecast.

With the latest traffic statistics for February showing a 5.5% increase in revenue passenger kilometres, and the shares on a forward P/E of a very low 8 and falling to 6.5 for 2016, International Consolidated Airlines looks to have a bright future.

Back from the dead

Still on a travel and leisure theme, Thomas Cook Group (LSE: TCG) has achieved a stunning recovery after hovering on the verge of going bust in 2012, and since the low point the shares are up 1,150% to 141p today! The price is admittedly down 22% over the past 12 months, but did get a boost when the company announced a tie-up with China’s Fosun investment group.

Fosun bought up 5% of Thomas Cook’s shares for £91.8m and apparently plans to take that up to 10% in due course, and there are clear potential benefits from the partnership as Chinese tourism is booming.

Again we’re looking at a recovering company that has yet to resume paying dividends, but there’s a tentative 1% yield forecast for this year rising to 2.7% in 2016, and the shares are on P/E multiples for the two years of 11.4 and 9.1, which still make them look cheap.

Quality outsourcing

Our third today, Compass Group (LSE: CPG), handles outsourcing of food and support services in around 50 countries, with the sports and leisure business bringing in 11% of 2014’s turnover.

With the shares up 14% over the past year and now on a forward P/E of nearly 21, Compass Group might not look a bargain. But the company seems to think its shares are good value after having repurchased nearly 22 million of them last year for £200m, and is still hoovering them up today.

Safer option?

It’s less risky than the other two, as airlines are at the mercy of the oil price and have little control over costs, and there’s EPS growth of 13% followed by 9% forecast for this year and next. Dividend yields are fairly low at around 2.5%, but close to twice covered. And a 5.7% rise in organic revenue in the three months to December could convince the market that Compass deserves a long-term premium rating.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.