Investing.com - Goldman Sachs has turned positive on International Airlines Group (LON:ICAG), seeing an opportunity for the Anglo-Spanish company to outperform expectations going forward.
The influential investment bank has upgraded its investment stance on IAG all the way to ‘overweight’ from ‘underweight’, while lifting its December-2025 price target to €2.50, from €1.45, implying upside of around 50% from the stock’s last close.
At 0815 ET (1315 GMT), IAG stock traded almost 5% higher at €1.74 at its Madrid listing.
Goldman had concerns that high capacity growth in 2024 would lead to pricing and earnings pressure, but says it’s now clear from the 2023 results that earnings are unlikely to decline this year.
“We now see an opportunity for IAG to outperform consensus expectations despite the start of a re-investment cycle (higher opex/capex), which should then benefit longer- term earnings,” the bank’s analysts said, in a note.
The group, which includes British Airways and Iberia, is beginning a large re-investment cycle in 2024 which has the potential to drive sustainably higher EBIT margins from 2025 onwards, the bank said.
British Airways’ EBIT is still around €500 million below pre-pandemic levels, offering plenty of upside from capacity returning to 2019 levels.
Additionally, rapid de-leveraging has removed the pandemic balance sheet overhang, and thus Goldman forecasts decent free cash flow generation for 2024 despite high capex investment.