Is IAG’s 27% upside potential justified?

• International Consolidated Airlines Group (LON: IAG) was the second best performer on the FTSE 100 on Monday (26 July 2021)
• Shares rallied over 4% ahead of its Q2 earnings, which is due on Friday
• The airline group has a majority rating of ‘buy’ and price target of £220
• This equates to a potential 27% upside from its current price
• Interested to trade IAG shares? Open an account with us today to get started.

IAG stock price: what are analysts saying?

IAG shares climbed as much as 4.1% on Monday, ahead of its second quarter and half-year results for 2021.

The group's shares have increased nearly 8% since the UK government began allowing residents who have been fully vaccinated with an NHS administered vaccine, plus 14 days, to travel to amber list countries without having to quarantine on their return to England.

The stock has a majority rating of ‘buy’ from eight out of 14 analysts, and a consensus price target of £220, based on the latest analyst data published by MarketBeat.

The price target represents a potential 26.7% upside from IAG’s latest share price of £173.66.

The most recent investment thesis came from UBS Group analyst Castle Jarrod, who kept a ‘buy’ call and price target of £280 on 13 July.

Meanwhile, Goldman Sachs’ Patrick Creuset downgraded IAG to ‘neutral’ from ‘buy’ alongside a price estimate of £204 (up from £190 previously) in a June note, stating that the airline’s ‘valuation looks full’ despite its strong market position.

How will IAG fare in Q2 earnings?

The parent company of British Airways is scheduled to release its Q2 and half-year financial results for the three months ended 30 June 2021 on Friday (30 July).

Although IAG noted in its Q1 update that it will not be providing profit guidance for the rest of the year given the ongoing uncertainty caused by Covid-19, CEO Luis Gallego said that the company has been working towards boosting liquidity and reducing its cost base.

In addition, he said cargo has enabled the group to operate a more extensive passenger long haul network, as evident in the 1,306 cargo-only flights and ‘record’ 350 million euros in revenue achieved in the first quarter.

‘We’re taking all necessary actions to ensure the financial health of our business for the long-term, including last year’s successful 2.7 billion euro capital increase, and remain focused on reducing our cost base and increasing efficiencies,’ said Gallego.

In the first quarter of 2021, IAG posted an operating loss of 1.07 billion euros, against an operating loss of 1.86 billion euros in the same quarter a year prior. Passenger capacity for the quarter was 19.6% of 2019’s figures.

Credit Suisse analysts believe that the group’s total debt will peak at around 12 billion euros in Q2, with revenue increasing to three billion euros in the third quarter. Earlier this month, they lifted their price target on IAG to £256 from £228 while maintaining an ‘outperform’ recommendation.

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