International Airlines Group (IAG) Stock Upgrade

Shares of International Airlines Group (LON:ICAG) rose over 2% on Wednesday after Deutsche Bank (ETR:DBKGn) Research upgraded the stock to buy.

Upgrade Insights

The upgrade reflects the analysts' positive outlook for IAG, driven by factors supporting continued margin recovery and profitability.

Market Position

Deutsche Bank highlighted IAG’s strong position in the transatlantic market, where supply constraints are expected to drive pricing power. International air traffic, especially on North Atlantic routes, remains tight, positioning IAG’s British Airways unit for potential benefits.

Transformation Program

IAG's ongoing £7 billion transformation program is anticipated to enhance margins and streamline operations in the coming years.

Financial Outlook

Deutsche Bank pointed to IAG's impressive financial trajectory and forecasts positive free cash flow generation and further de-leveraging, providing opportunities for shareholder returns and mergers or acquisitions.

Valuation

Despite these positive factors, IAG shares are seen as undervalued, with a price-to-earnings ratio of about 5x for 2025 estimates, well below the historical average of 7x.

Industry Context

The airline sector faces various challenges in 2025, with growth in short-haul supply expected to match demand. However, analysts believe pricing power in long-haul routes will remain strong because of supply limitations and IAG’s market dominance.

Conclusion

Deutsche Bank is optimistic about IAG outperforming peers and the broader market, setting a target price of 400p for IAG, indicating further potential upside based on their positive medium-term outlook.