British Airways Owner IAG’s Shares Jump – Here’s Why

IAG (LON: IAG) shares rose around 3% on Wednesday, fueled by a double-upgrade from Morgan Stanley. Analyst Conor Dwyer upgraded the stock from Underweight to Overweight, citing a more positive outlook on pricing and capacity in key markets.

The bank raised its price target for the stock to EUR 2.80 from EUR 2.10. Previously, in January, Morgan Stanley downgraded IAG due to concerns about pricing risks caused by high capacity growth, particularly in the lucrative North Atlantic route.

However, Dwyer now believes near-term capacity tightness and positive fare data suggest a more favorable pricing environment for IAG.

The upgrade also highlights limited opportunities for competitors to significantly increase capacity in key areas like Heathrow Airport and the European widebody market. This further strengthens IAG's position and its ability to capture profits.

Adding to the bullish outlook, Morgan Stanley points out IAG's attractive valuation. The company is currently trading at a significant discount to its historical averages, with a P/E ratio of 3.9 and an EV/EBITDA ratio of 3.2. This represents a 40% and 30% discount, respectively, compared to its historical performance.

While airlines in general may offer cheap valuations currently, Morgan Stanley believes IAG stands out with a clearer path for future earnings growth compared to its peers.

This combination of positive industry trends and undervalued stock price is driving investor confidence in IAG, leading to the recent jump in share price.