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He International Group of Consolidated Airlines (LSE:IAG) share price has had a tough start to 2024, falling almost 10% over the first two weeks of the year. However, over the past week, the stock has managed to recoup these losses, rising over 7% at the time of writing. Is this a trend that I think can continue throughout 2024? And if so, should you buy shares of this UK airline today? Let's take a closer look.
Some difficult years
International Consolidated Airlines has largely managed to recover from pandemic losses, seeing an 18% increase in revenue and a 44% increase in net profit in the third quarter. Net profit margins also increased by over 22%, which is a great sign. That said, this reversal has not been reflected in the share price, which still sits around 65% below its February 2020 price of 430p.
Management has also taken steps to reduce its large debt, which it was forced to take on during the pandemic travel halt. In its latest results, net debt had been reduced to just over €8 billion, a reduction largely driven by improved cash flows. This marked a decrease from €10.4 billion the previous year.
Another reason its stock has struggled to gain momentum since the pandemic is due to high fuel costs. The conflict between Russia and Ukraine, along with rising global inflation, caused oil prices to skyrocket in 2022, to more than $120 a barrel. This was bad news for International Consolidated Airlines Group, as oil accounts for 25% of its total costs.
Currently standing at around $75 a barrel, analysts estimate that this figure will rise slightly to $80 by the end of 2024. It should be noted that International Consolidated Airlines has covered 65% of the fuel for the fourth quarter of 2023, the 58% for the first quarter of 2024, 49% for the second quarter. 2024 and 39% for the third quarter of 2024. This mediates my concerns about rising costs in the future.
Valuation Perspectives
The stock currently trades at a price-to-earnings (P/E) ratio of just five, which seems like a good value to me. Competitor easyJet trades with a much higher P/E ratio of 12. Furthermore, the FTSE 100 It trades at an average P/E ratio of 14. These two indicators tell me that International Consolidated Airlines could be undervalued.
The company has not paid dividends since before the pandemic. However, this could be changing in 2024. The airline is expected to pay an annual dividend of 3.3 cents per share in 2024. Based on the current price, this would represent a yield of 2.2%. While this is good news for shareholders, this figure remains below the FTSE 100 average return of 3.9%.
Is now the time to buy?
To me, International Consolidated Airlines Group looks like a solid stock. It appears to be well priced and is starting to deliver solid results after being decimated by the pandemic. However, nothing special stands out to me that makes me want to buy the shares. Yes, they look cheap, but I think there are much better value stocks in the FTSE 100 right now. For this reason, I am skeptical that the stock will take off in 2024 and therefore I will not be buying any of its shares today.
