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IAG Shares (or to give it its full name, International Group of Consolidated Airlines (LSE:IAG) – were still struggling to get rid of their own version of long Covid in early 2024.
The pandemic was a disaster for airlines. IAG only managed to get ahead by accumulating debt. For a moment, the owner of British Airways was on edge.
Obviously he survived. And when people flew again, investors had a brilliant opportunity to buy their shares cheaply, which I squandered.
And I continued to miss the opportunity throughout 2024. It was a brilliant year for the IAG share price, which soared 98.6%. That made him the best performer of the entire FTSE 100 (a squeak in front of Rolls-Royce).
Can this FTSE winner smash the index again?
If a brave investor had wagered a whole year's £20,000 stocks and Shares ISA contribution limit on IAG at the start of last year, they would have £39,720 today.
In fact, they would have a little more. The board resumed dividends last year and the trailing yield is 0.85%. So they would have gotten another £170 or so, bringing my mythical investor's total stake to £40,000.
I'm torturing myself here. I didn't put a cent into IAG. The question is whether it is too late to reverse that mistake.
Last year saw a resurgence in transatlantic travel, boosting British Airways and helping to offset European flight delays. BA's margins reached 20%, despite a 14% increase in labor costs. Falling fuel prices helped.
Investors can expect more revenue in 2025, with the yield expected to reach 2.96%. The board is also seeking a share buyback worth 350 million euros.
IAG still has a lot of work to do. It plans to invest £7bn to improve its cabins and onboard services, which have been the subject of much criticism. British Airways also needs to work on its punctuality. Traffic control problems won't help and there's not much that can be done about it.
I still have doubts about buying these shares.
IAG also can't do much about the price of oil, which as always could go in either direction. It is also fighting to raise fares, an issue affecting other airlines, including Ryanair. Aer Lingus, which is also owned by IAG, has struggled amid a pilot strike and increased competition at Dublin Airport.
The group still owes around 6 billion euros, an amount that must be reduced. I was happy to see the board back out of an agreement to buy a stake in Air Europethe third Spanish airline. I would prefer it reduce debt and return cash to shareholders.
So should you buy IAG today? The stock still looks ridiculously cheap to me, trading at just 7.21 times trailing earnings.
However, I don't think we can expect a repeat of the stellar run in 2024. The 25 analysts offering one-year share price forecasts seem to agree with me. They have produced an average target of 326p. If correct, this is a modest increase of just 9% from today (although the forecasts are little more than educated guesses).
I feel like an airplane passenger who appears at the gate just after closing it. I missed my flight and yes, I'm kicking myself. That's how it is. Rather than buying last year's big winner, I will be looking for a stock that is ripe for a recovery in 2025. Fortunately, I can see plenty of bright opportunities in the FTSE 100 today.
