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IAG shares – or to give it its full name, International Consolidated Airlines Group (LSE: IAG) – were still struggling to release their long version of Covid in early 2024.
The pandemic has been a disaster for airlines. IAG only succeeded by loading up on debt. For a moment, the owner of British Airways was on edge.
Apparently, it survived. And when people started flying again, investors had a great opportunity to buy their shares cheaply – which I wasted.
And I continued to waste the opportunity during 2024. It was a great year for IAG’s share price, which rose 98.6%. That made it the best of them all FTSE 100 (standing up leading the way Rolls-Royce).
Can this FTSE winner smash the index again?
If the brave investor had gambled on the £20,000 limit contribution of a stocks and shares ISA to IAG at the start of last year, he would have £39,720 today.
In fact, they will have more. The board also restarted dividends last year, with a subsequent yield of 0.85%. So they would get another £170 or so on top, pushing my fictional investor’s total to £40,000.
I’m torturing myself here. I have not invested a single penny in IAG. The question is whether it is too late to undo that mistake.
Last year saw the resumption of transatlantic travel, which boosted British Airways and helped ease delays on European flights. BA’s margins reached 20%, despite a 14% increase in labor costs. Lower fuel prices have helped.
Investors can expect more income in 2025, with the forecast yield reaching 2.96%. The board is also pursuing a €350m share buyback.
IAG still has a lot of work to do. It plans to invest £7bn to improve its cabins and flight services, which has come under heavy criticism. British Airways also needs to work on its punctuality. Traffic control problems won’t help, and they won’t do much about it.
I’m still wary of buying this stock
IAG can’t do much about the price of oil, which can go either way. It is also difficult to raise fares, a problem faced by other airlines including them Ryanair. Aer Lingus, also owned by IAG, has struggled amid a pilot strike and increased competition at Dublin Airport.
The club still owes around €6bn, which needs to be worked down. I am pleased to see the board exit the stake purchase agreement Air Europathe third largest airline in Spain. Better to reduce debt and return cash to shareholders.
So should I buy IAG today? The stock still looks ridiculously cheap to me, trading at just 7.21 times trailing earnings.
However, I don’t think we can expect a repeat of 2024’s stellar run. 25 analysts who provide one-year share price forecasts seem to agree with me. They produced an average target of 326p. If correct, that’s a slight 9% increase from today (although the predictions are more of an educated guess).
I feel like an airplane passenger who arrived at the gate shortly after closing. I missed my flight and yes, I’m kicking myself. So it goes. Instead of buying last year’s big winner, I’ll look for stocks poised for a 2025 recovery. Thankfully, I can see plenty of good opportunities in the FTSE 100 today.
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