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Buying International Consolidated Airlines Group (LSE: IAG) shares is the single best investment decision I’ve made this year. For once, a plan actually worked.
I’ve had half an eye on the British Airways owner for several years, watching its stuttering recovery from the pandemic. It racked up huge debts just to stay airborne, but I was stunned to see it trading at barely three or four times earnings. I kept assuming I must be missing something, and hesitated. I was kicking myself when the share price doubled last year.
Normally that’s when I lose interest, convinced I’ve missed the boat. A key reason the group had done so well was the transatlantic flight recovery, where British Airways has huge exposure. So when Donald Trump shocked global markets with his ‘Liberation Day’ trade tariffs, the shares took an outsized hit. And when he paused them for 90 days on 9 April, I jumped straight in.
The stock had already bounced 9% by the time my trade executed, which was annoying, but it seems churlish to complain as my gain is 45% and rising. For once, I caught the momentum at the right moment.
Still room to climb
The shares are up 53% in just three months. Over 12 months, the total gain stands at 108%. Yet the forward price-to-earnings ratio is still just 7.7, so it hardly looks expensive to me.
Airline stocks are inherently volatile. They’re exposed to everything from oil prices to wars, natural disasters and industrial action. And they have massive fixed costs, with fleets to maintain and staff to retain, even when demand slows. So I can’t assume the shares will recover to a fair value P/E of around 15 times earnings.
FTSE 100 stock on fire
Latest results from 9 May were upbeat. First-quarter revenue rose 9.6%, while operating profit before exceptional items jumped €130m to €198m. The balance sheet looks better too, with gross debt falling by €1.86bn since the end of 2024, bringing it to a around €6.9bn. That gives it some breathing space if the market turns.
The board is rewarding shareholders, completing €530m of share buybacks and is returning €435m in dividends. The forecast yield is 2.56% this year and 2.96% in 2026.
Turbulence will come
There are still risks. The oil price picked up sharply during the recent Israel-Iran conflict and while it’s now easing back, nobody can predict what happens next. While premium demand is holding up, US economy leisure bookings may stall. Operating margins climbed by 1.7 points in Q1 but still look wafer thin at 2.8%
Market analysts seem confident. Of the 26 offering one-year ratings, 17 call it a Strong Buy. Only one says Sell. The median broker price target is 402p, around 8.85% ahead of today’s 368.6p. That suggests the pace of growth is going to slow, although many of those forecasts will have been made before the recent surge and may be more optimistic today.
With the FTSE 100 recently hitting record highs, a pullback can’t be ruled out. If August brings a wobble, it could drag this stock with it. But that might offer a buying opportunity. For those willing to take a long-term view, I think the stock is still worth considering today.
