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Are IAG shares overvalued after a 20% rise?

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IAG (LSE:IAG) shares have gained 20% over the past month. He performed better. FTSE 100 By some distance and out of range — the stock looked range-bound for much of 2023. So why has IAG stock risen and started to look more valuable? Let’s find out.

Consensus is better.

Analysts have been increasingly bullish on British Airways and the owner of Iberia in recent months. The stock now has seven ‘buy’ ratings, four ‘outperform’ ratings, and four ‘hold’ ratings. There are no ‘sell’ or ‘underperform’ ratings.

The average share price target is also a good way to understand whether a stock is undervalued or overvalued. Currently, the average share price target for IAG is £2.25, representing a 29.1% premium to the current share price. This is definitely a good sign.

However, it is worth bearing in mind that share price targets are not always accurate. They can be a great barometer but it’s always worth recognizing that they aren’t always updated that often, meaning they can be out of date with some fast-moving stocks.

Upgrades a lot.

IAG received several high-profile upgrades in March that helped propel the stock higher. RBC Capital Markets raised its rating from ‘sector perform’ to ‘outperform’ while raising its IAG 2025 earnings per share estimate by nearly 60%.

JP Morgan Cazenove It also gave IAG a double upgrade, expecting the shares to move from ‘underweight’ to ‘overweight’. The group raised the price target to €2.50 from €1.45 and, most recently, put the firm on a ‘positive catalyst watch’ ahead of Q1 results.

Finding value

While it’s great to use guidance from brokerages, it’s even better if we can validate these positions on our own. IAG is forecast to earn 36.8p in 2024, 40.3p in 2025, and 43.7p in 2026. Thus, it looks cheap at 4.8 times forward earnings. Moving forward to 2025, that drops to 4.3 times and four times in 2026.

This is very strong data and growth prospects also look quite positive. In fact, with a medium-term growth rate of 5.8%, we have reached a forward price-to-earnings-to-growth (PEG) ratio of 0.81. This is one of the strongest PEG ratios I’ve seen. FTSE 100.

I also need to compare it with peers. RyanairIt is the sector leader in terms of trading multiples. The company trades at 16.2 times forward earnings, 12 times forecast for 2025 and 12.2 times earnings for 2026. It’s clear where the value is — IAG. After comparing IAG more extensively with its peers, it stands out as the best value in the sector.

The bottom line

Predictably, IAG offers good value. His business strategy also seems to be paying off. Among other things, it has a strong fuel hedging strategy that could give it an advantage on transatlantic routes where its US peers don’t – a caveat that IAG also hedges due to its US partner. do not Despite the hedging strategy, volatility in aviation fuel represents a risk for IAG.

But finally, although it may seem trivial, IAG’s fleet is more diverse than Ryanair’s, and consists of more Airbus In airline competition, Ryanair operates only Boeing 737 platform – including 90 737-Max aircraft. There are safety concerns about the aircraft, and production rates are falling. I won’t fly on the 737-MAX myself!


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