JP Morgan has removed International Consolidated Airlines Group SA (LSE:IAG) from its analyst 'focus list' after a run of outperformance, while cutting earnings forecasts for the British Airways owner on higher fuel costs and reduced capacity.
Analyst Harry Gowers lowered his operating profit estimates by 6%, 5% and 4% across the forecast period following second-quarter results, and now expects €4.54 billion of earnings before interest and tax this year.
The December 2027 price target falls 4% to €5.75 from €6, leaving around 15% upside to the last close.
The 'overweight' rating stays in place. Gowers said fundamentals remain intact and robust long-haul demand should generate free cash flow significantly ahead of rivals.
IAG expects to maintain similar growth in revenue per available seat kilometre, the industry's core pricing measure, through the rest of the year, with long-haul bookings still solid.
Capacity guidance has been cut, largely because flying to the Middle East has resumed slowly.
The broker sees that as a potential support for pricing through the second half.
Despite the volatility in the region and a sharp increase in fuel costs, the group still expects to land within its 12% to 15% operating margin range this year.
That would make it the most profitable name in JP Morgan's coverage on that measure, and drive significant cash generation.
The reason for the demotion is a valuation and expectations one rather than a fundamental change of view.
IAG shares are up 7% so far this year and have outperformed the sector, with the exception of easyJet.
Over the same stretch, the broker's operating profit estimate for the group has fallen roughly 15% below where it started the year.
The shares trade on 6.8 times 2027 earnings on JP Morgan's numbers.
