There’s a first-quarter earnings release due from airline operator IAG (LSE: IAG) on 10 May, and the share price is around 179p (6 May).
But the chart below shows the stock above 400p just before the pandemic hit. Can the upcoming trading announcement help to propel the stock back towards previous highs? Maybe.
City analysts predict a decline of about 11.5% for normalised earnings this year with a bounce-back of about 9.5% in 2025.
However, any positive news or improvement in the outlook statement this coming Friday may cause the market to reassess the stock and move it higher.
Dividends are storming back
One of the big positives for investors is the re-establishment of the shareholder dividend, which is forecast to build rapidly in 2024 and 2025.
The British Airways owner’s shareholder payment was a big casualty of the pandemic. All airlines had the rug pulled from under their businesses when aircraft were grounded. The sector was a disaster, and even billionaire investor Warren Buffett famously dumped his airline stocks.
Investor sentiment was at an all-time low, and it looked as if some airlines wouldn’t survive the crisis.
IAG is still with us. But let’s not forget that to survive it had to raise more funds, increase the share-count and take on extra debt.
In terms of the financial and trading outcomes, the company’s already recovered to its pre-Covid levels. For example, in 2019, net profit came in at just over €1.7bn. But in 2023, it was higher at more than €2.6bn.
However, 2019’s earnings-per-share figure was about 78 cents and 2023’s lower at around 50 cents. The difference represents the share dilution in action and it’s a major reason for the stock struggling to regain the 400p level.
Trading well and targeting growth
Nevertheless, despite the severe cyclical challenges experienced by the company, recent updates have been positive.
In February’s full-year results report for 2023, chief executive Luis Gallego was upbeat. The firm had more than doubled its operating margin compared to 2022, generated excellent free cash flow and strengthened its balance sheet, Gallego said.
Capacity had recovered almost to pre-Covid levels in most of the company’s core markets. The strategy for 2024 onwards focuses on “building long-term value into the business”.
So this is a recovery play that has already recovered. Although shareholders might be disappointed that the share price is so much lower today than it was in 2019. The play now is all about the long-term growth of the business. However, there’s a problem.
As I see it, IAG’s one of the most cyclical stocks on the market. Revenues, cash flows, earnings, dividends and the share price can all swing wildly over time. There’s a long history of all sorts of economic factors affecting airline businesses.
For me then, this is not the first company I’d choose as a long-term investment. There are better stocks out there, so I wish shareholders well at IAG and quietly move on to consider the next stock opportunity.
