IAG Shares: FCF and Buybacks ‘to Drive the Next Leg’

International Airlines Group (LON: IAG) shares are poised for further growth, according to a note from Goldman Sachs this week.

The investment bank, which maintained a Buy rating on the stock, raised its earnings estimates for the company, citing a stronger-than-expected Atlantic outlook and robust free cash flow generation.

Goldman Sachs highlighted that IAG's North Atlantic and European short-haul capacity growth has been moderated, leading to lower operating costs.

Additionally, the recent decline in jet fuel prices is said to have further boosted the company's profitability.

“We raise our 2024-26 EPS estimates for IAG by 6% on average reflecting, on the one hand, lower capacity growth on the North-Atlantic and European short-haul for the year ahead, as well as the recent decline in jetfuel prices,” stated the bank in the note.

For 2024, Goldman Sachs forecasts IAG's earnings before interest and taxes (EBIT) to reach €3.7 billion, aligning with current market expectations.

However, the firm's EPS estimates of 53 cents and 58 cents for 2024 and 2025, respectively, remain 4% ahead of the consensus.

A key pillar of Goldman Sachs' bullish stance on IAG is its strong free cash flow generation. The analyst firm now anticipates IAG to generate €1.7 billion in free cash flow this year, up from the €1.1 billion forecast at the time of its previous upgrade.

“A core tenet of our Buy case on IAG remains its strong FCF generation; we now expect €1.7bn FCF this year, up from €1.1bn at the time of upgrade,” the firm concluded.

IAG shares have climbed a further 0.7% on Monday, trading around the 215p a share mark. This year, the stock has gained almost 40%, while in the last 12 months, it has climbed 56%.