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​​​IAG poised for earnings rebound in Q1 2024

​​IAG poised for earnings rebound in Q1 2024 after years of grounded flights, heavy losses, equity raises, and dividend suspensions.

Aircraft Source: Getty Images

​​​IAG poised for earnings rebound in Q1 2024

International Airlines Group (IAG), the owner of British Airways, Iberia, and Aer Lingus, is set to report its first quarter (Q1) 2024 earnings on 10 May. After several years of cost-of-living-crisis-induced struggles, there are signs that IAG may be on the road to profitability.

​Analysts anticipate IAG's revenue and profits to demonstrate strong growth compared to the same quarter last year. In 2023, the company generated over €3,056billion in pre-tax profit, surpassing its 2019 pre-pandemic levels. This rebound comes after years of grounded flights, heavy losses, equity raises, and dividend suspensions in 2020 through 2022.

​Q1 revenue is expected to hit €6,434billion in Q1 2024 compared to €5,889billion in Q1 2023 while a pre-tax loss of €76.38 million is anticipated to be seen versus a loss of €121 million in Q1 2023 and €939 million in Q1 2022. This should not worry investors duly as the Q1 tends to be a negative one for pre-tax profits. Besides these are expected to turn into a pre-tax profit of €951 million in Q2 and €1,619 billion in Q3 2024.

​IAG took dramatic steps to survive while air travel was at a near standstill. The company secured funding, cut costs, and restructured operations. These painful but necessary moves appear to have paid off as demand has normalized. IAG is now poised to enter a growth phase building on its leaner structure.

​The restart of IAG's dividend will be a key area of focus in its upcoming earnings release. The company restored shareholder payouts in late 2023 after a three-year hiatus. Investors will look for updates on IAG's capital return policy and any additional plans to increase distributions. Steadily rising dividends could catalyse the stock price which remains around 60% below its 2018 peak.

​IAG CEO Luis Gallego cited strengthening IAG's balance sheet as a top priority for 2024 and beyond. The company aims to improve its investment grade credit rating after taking on substantial debt amidst the travel collapse. Generating consistent free cash flow and paying down obligations will likely support multiple expansion over time.

​With capacity recovering toward pre-pandemic levels across most of IAG's network, the company appears poised for multi-year growth. Management aims to capture rebounding demand through competitive positioning rather than rapid expansion. IAG intends to build long-term shareholder value through prudent investments in fleet, technology, customer experience and sustainability.

​Of course, risks remain for IAG and its airline peers. The industry's extreme cyclicality tied closely to economic growth leaves little room for error. Any signs of demand deterioration, whether from inflation, recession fears or geopolitical tensions, could derail the recovery.

​For long-term investors, IAG offers a potentially rewarding recovery play. The company has so far managed well through crisis and change. Its portfolio of premium brands, strong transatlantic network, and flexibility to adjust capacity bode well. Cost discipline and restoring the balance sheet should also reassure.

​IAG share price and technical analysis outlook

​IAG’s share price has shown some positive momentum in recent months. Since bottoming out at 90.48p in October 2022, IAG’s share price has doubled to this week’s 2 ½ year high at 184.55p. Year-to-date it has risen by around 14%.

​IAG Weekly Chart

IAG Weekly Chart Source: TradingView
IAG Weekly Chart Source: TradingView

​On the weekly chart a continuation triangle breakout recently occurred to the upside. This puts the March 2021 peak at 222.1p back on the plate. This longer-term bullish view will remain valid while no unexpected slip takes the IAG share price below its 156.10p mid-April low.

​IAG Daily Chart

IAG Daily Chart Source: TradingView
IAG Daily Chart Source: TradingView

​Tuesday’s rise above the 180.25p April peak at first boded well for IAG share price bulls as it increased the likelihood of a valid break above the April high being seen.

​Comments by Ryanair CEO Michael O'Leary on Tuesday saying that ticket prices were likely going to rise by less this summer than previously expected, provoked a sharp intraday sell-off in European airline shares such as IAG’s.

​Having said that, while the mid-April low underpins, the medium-term uptrend will remain intact. Once a daily chart close above the 180.25p April high has been seen, the psychological 200p mark would be back in the frame, ahead of the March 2021 high at 222.1p.

​Analysts recommendations

​Fundamental analysts are rating IAG as a ‘buy’ with Refinitiv data showing 5 strong buy, 8 buy and 4 hold - with the mean of estimates suggesting a long-term price target of 235p pence for the share, roughly 28% above the share’s current price (as of 7 May 2024).

IAG analysts Source: LSEG
IAG analysts Source: LSEG

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