James Gard: Each week we look at one stock that is cheap or expensive and why. This week it’s the turn of IAG, which owns British Airways, Iberia and Air Lingus. After last year’s disruption, the last thing European carriers needed was a new, rapidly spreading coronavirus variant. With countries reimposing travel restrictions again, fear is again stalking the industry.
IAG is now rated as a 5-star stock, according to Morningstar analysts, after a share price fall of around 20% in the last month alone. Shares have a fair value estimate of £3, but are trading around £1.30, even below the level seen in March 2020.
Morningstar analyst Joachim Kotze says shares in airlines like IAG may look cheap and tempting to bargain hunters. After all, there was a strong recovey last year as borders re-opened. But the extreme uncertainty at the moment means there is a risk of further falls in airline share prices, especially as the end of the pandemic is so hard to call. To get back on track, IAG needs international and business travel to make a sustained comeback at British Airways, Kotze says. And he predicts that BA’s passenger numbers will recover to 2019 levels by 2024, so it’s a long haul for investors.
In terms of European airlines, our analysts prefer Hungary’s Wizz Air as a recovery play when conditions start to improve.
For Morningstar, I’m James Gard.
