IAG Share Price is Cheap by About 60%, Analysts and DCF Shows

The IAG share price has been in a freefall, thanks to the ongoing uncertainties on global travel as the Delta variant spreads. The stock ended Tuesday at 173p, which is about 21% below the highest point this year. Other airline shares like Ryanair and EasyJet have also underperformed.

IAG news. After rising sharply this year, IAG, the parent company of British Airways, has struggled. This struggle is mostly because of the Delta variant that has forced more countries to place travel restrictions.

For example, Australia’s New South Wales (NSW) state has placed local and international restrictions. Similarly, in Europe, countries like Germany and Portugal have added some restrictions. Japan has also extended a state of emergency while the number of cases in the US has surged despite the vaccination efforts.

Therefore, investors are generally concerned about the health of the sector. Still, there is some optimism. For example, analysts expect that Delta will report a sharp increase in second-quarter revenue as demand increases. The company will publish these results later on Wednesday. 

Additionally, analysts expect that demand will soar when the vaccination rates increase later this year. They expect that people will revenge-travel when risks of infections subside. As a result, many analysts who track IAG share price are optimistic about it. 

For example, as shown below, analysts at UBS expect that the shares will rise to 280p, which is about 60% from the current level. Similarly, those at Credit Suisse expects the stock will rise to GBX 256 while those at Bernstein see it rising to 250p. Further, in a recent note, Barrons mentioned IAG as one of the best European airlines to buy. 

IAG analysts

Similarly, a DCF calculation shows that the stock is 62% undervalued.

IAG DCF

IAG share price forecast

In recent articles, we noted that the IAG share price had formed a rising wedge pattern that is usually a bearish signal. At the time, we predicted that the stock would drop sharply. That prediction was right as the stock dropped by 10%. 

We also noted that the recent rally was unsustainable since it was part of a break and retest pattern. Today, the shares remain below the short-term moving average and the wedge pattern is still at work. Therefore, I suspect that the stock will keep falling as the Delta cloud continues. I then expect it to rebound later this year.

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IAG stock chart

IAG share price

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