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The International Consolidated Airlines Group (LSE: IAG) share price has flown into the heart of the storm unleashed by Donald Trump’s trade tariffs. Despite jumping nearly 5% on Thursday, IAG shares are still down a painful 20% in the past month.
For long-term holders, it’s been a wild ride. The share price doubled last year, but that impressive 12-month return has now slipped to 40%. And with all the uncertainty, investors still risk a rough landing.
IAG got a real lift last year thanks to its hefty exposure to the transatlantic travel market via its British Airways arm. That made it a winner while the US economy was strong.
But with the States turning inward and risking recession, that strength’s looking more like a liability.
Can this FTSE 100 stock take wing?
On paper, IAG’s 2024 results published on 28 February were stellar. Operating profit jumped 26.7% to €4.44bn, free cash flow hit €3.56bn, and the company returned a chunky €435m in dividends. It announced plans to return up to another €1bn of excess cash to shareholders within 12 months.
CEO Luis Gallego pointed to “world-class margins” but those results now belong to a calmer, safer world. One that already feels like a distant memory.
I decided to take advantage of last week’s mayhem to buy IAG shares on Thursday (10 April). By the end of the day, I was down 3%. Two days later, I was 5% in the red. That’s happened to me a lot lately.
Do I regret the move? Not wholly. I managed to grab the stock at a 30% discount to its February high of 366p. Plus, I bought in at a rock-bottom P/E ratio of around five. That’s close to where it was before last year’s mighty rebound. That kind of valuation gives me a bit of comfort, and a potential springboard when sentiment improves.
On top of that, IAG’s forecast to yield 3.71% in 2025, rising to 4.43% the year after. Not bad for a company that has only just resumed shareholder payouts.
Dividends and growth, but bags of risk
If fuel prices keep falling and interest rates edge lower, that could ease cost pressures and help ease the cost of servicing that €6bn debt pile. That said, I’ve definitely signed up for a bumpy ride. Airlines are always first in line when trouble strikes, whether it’s global politics, recession, natural disasters or a presidential tweet.
The 26 analysts offering one-year price targets for IAG have landed on a median forecast of just over 384p. From today’s 240p, that would be a gain of almost 60%. Of the 27 analysts tracking the stock, 16 call it a Strong Buy, four say Buy, six Hold, and just one says Sell. That looks like a pretty strong vote of confidence to me.
If it plays out like that, I’ll be delighted. But plenty of those predictions were made before the recent chaos, and may no longer hold.
For now, all I can do is buckle up. My investment horizon is five, 10 years, or more. One day, I hope to look back with fondness on my IAG trade. But for anyone considering climbing aboard now, my advice is simple: keep the sick bag handy.
