IAG Shares Climb: Will the Rally Continue?

IAG (LON: IAG) shares hit their highest level since 2021. With investors becoming more bullish on the stock, can the rise continue?

Shares of the parent company of British Airways, Iberia, and Aer Lingus surged by 26% this year and 17% in the past month. IAG currently trades above the 195p per share level and is steadily heading towards the 200p a share mark.

One of the key factors driving IAG's rally was the announcement of a dividend in early August (alongside the company scrapping the Air Europa deal. A move that was said to reflect IAG's confidence in its strategy and business model.

In addition, the airline's debt pile was €9.25 billion at the end of 2023. That has now been cut to €6.4 billion, providing investors with another reason to be more positive on the stock.

The debt reduction adds to the positive of IAG's H1 operating profit of €1.31 billion, which rose from €1.26 billion in H1 2023.

Furthermore, IAG's shares, especially since the pandemic, have often been considered as undervalued, making them a potentially attractive investment proposition for those looking to pick up bargains.

The company's valuation has been relatively low compared to its peers, suggesting that there is potential for further upside. Out of 26 analysts offering price targets on the stock, the average target is 237.1p, suggesting a potential further upside of 21%.

Even so, while the outlook for IAG appears promising, there are always headwinds that the airline industry can face at any time, including rising fuel costs, geopolitical tensions, and economic uncertainty, all factors influencing IAG's slower recovery since the pandemic.

Despite these potential headwinds, IAG's recent share price surge suggests investors are increasingly bullish on the company's future.

The airline group's dividend announcement, perceived undervaluation, and the strong demand for air travel all contributed to the positive sentiment.

Whether the rally will continue remains to be seen. Travel demand remaining robust, especially as we enter the colder months, (which is not a given due to the current economic climate), is key to keeping the stock elevated.