International Consolidated Airlines Group SA (LSE:IAG) is undervalued compared to rivals, said RBC Capital, as it raised its share price target to 440p from 350p and backed British Airways owner as an 'outperform' pick.
The investment bank sees strong earnings momentum, with the FTSE 100-listed company's latest results exceeding expectations.
The Canadian investment bank now predicts IAG will generate €4.8 billion in adjusted earnings before interest and tax (EBIT) in 2025, ahead of the €4.6 billion consensus forecast.
The bullish stance is underpinned by a favourable capacity environment, particularly on key transatlantic routes.
North Atlantic fares rose 14% in the last quarter of 2024, and with airline seat availability between London and North America still down year-on-year, pricing power is expected to remain strong. Iberia is also benefiting from a more constrained supply of flights to South America.
Adding to the upbeat outlook is the recovery of Aer Lingus following strike-related disruptions last year, which should contribute to improved performance across the group.
Despite these tailwinds, RBC argues IAG remains undervalued compared to rivals.
The stock trades at just 5.5 times expected 2025 earnings, while peers such as Ryanair command much higher multiples. IAG is also set to return €1bn to shareholders through buybacks this year, equivalent to around 8-9% of its market capitalisation.
RBC acknowledges potential risks, including UK economic uncertainty, competitive pressures, and changes to BA’s loyalty programme.
However, with a robust balance sheet and demand holding firm, the investment bank believes IAG’s share price has further to climb, justifying the significant price target increase.
The shares were down 1.7% in afternoon trading at 313.1p.