Buy IAG and sell Wizz Air says broker as British Airways takes off
Analysts have backed British Airways owner International Consolidated Airlines Group (IAG) while warning investors away from budget airline Wizz Air in 2025.
Panmure Liberum analysts picked IAG shares as their ‘most preferred’ stock within transport, with a target price of 500p compared to its current 287p share price.
IAG was the best performing FTSE 100 stock of 2024, almost doubling in value last year.
The airline embarked on a £7bn transformation plan last year, with analysts confident its turnaround will pay off.
“Despite being one of the best performing stocks in 2024, we still see further
significant upside potential at IAG,” said Gerald Koo, analyst at Panmure Liberum.
“Constraints on the supply of new aircraft are limiting industry capacity growth, but this is supporting pricing power against demand that remains resilient.”
These constraints are also making it more likely that IAG is able to retain the benefit of ongoing lower jet fuel prices, he added.
Analysts also favoured the airline due to its strong market positions in both the North and South Atlantic markets, underpinned by its hubs in London Heathrow and Madrid Barajas.
Meanwhile, Wizz Air was selected as the ‘least preferred’ transport stock, with a ‘Sell’ rating from Panmure Liberum and a target price of 10,000p compared to a current stock price of 13,530p.
The analysts said they were “concerned about Wizz Air’s high leverage and low earnings quality”.
The budget airline currently has a net debt to operating profit ratio of 4.2 times, which the analysts described as “uncomfortably high,” especially compared with other low-cost airlines with net cash positions.
“We see limited scope for material reductions in leverage due to forthcoming new aircraft deliveries, despite these having been delayed by production rate problems at Airbus,” wrote Koo.
A large proportion of Wizz Air’s earnings are also derived from low quality sources, especially from aircraft sale & leaseback disposal profits, he noted.