Low Valuation Did Not Result In a Conviction Buy: International Consolidated Airlines Group

European airline company is a pass despite strong performance


International Consolidated Airlines Group SA (ADR ticker BABWF), a $16.4 billion Madrid/London-based Airlines operator, has significantly outperformed the broader S&P 500 index so far this year has provided 49.2% total return vs. the index’s 16.07%.

Despite this impressive performance, the airlines’ group’s PE ratio traded at 7.6x (vs. 15x for the industry) while providing a paltry 1.5% dividend yield at a payout ratio of 25%.

In its recent quarter, International Consolidated Airlines Group or IAG delivered 4.3% revenue growth to €5.95 billion and 20.5% profit rise to €530 million. Profit margin improved by 119 basis points year over year even as operating expenses rose by €235 million or 6.2%.

Meanwhile, IAG had €4.07 billion in cash and cash equivalents (€1 billion more than a year earlier), and €7.15 billion in debt and leases (€1.1 billion lower) with debt-equity ratio of 1.5x vs. 1.84x a year earlier.

In the past three years, IAG allocated €7.7 billion in capital expenditures, raised €2.19 billion in debt (net repayments), and provided €816 million in dividends and share repurchases despite a cumulative negative or free cash outflow of -€1.23 billion.

Despite this performance, 28 analysts have an average overweight recommendation with a target price of $17.75 per ADR share vs. $16.77 at the time of writing.

In summary, IAG is a pass.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s