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Is International Consolidated Airlines Group, S.A. (LON:IAG) Potentially Underrated?

Simply Wall St

International Consolidated Airlines Group, S.A. (LON:IAG) is a company with exceptional fundamental characteristics. Upon building up an investment case for a stock, we should look at various aspects. In the case of IAG, it is a financially-sound company with an impressive history of performance, trading at a great value. In the following section, I expand a bit more on these key aspects. For those interested in digging a bit deeper into my commentary, read the full report on International Consolidated Airlines Group here.

Very undervalued with proven track record and pays a dividend

IAG has a strong track record of performance. In the previous year, IAG delivered an impressive double-digit return of 35%. Unsurprisingly, IAG surpassed the Airlines industry return of 25%, which gives us more confidence of the company's capacity to drive earnings going forward. IAG’s debt-to-equity ratio stands at 24%, which means its debt level is acceptable. This indicates a good balance between taking advantage of low cost funding through debt financing, but having enough financial flexibility and headroom to grow debt in the future. IAG's has produced operating cash levels of 2.43x total debt over the past year, which implies that IAG's management has put its borrowings into good use by generating enough cash to cover a sufficient portion of borrowings.

LSE:IAG Income Statement, August 21st 2019

IAG's share price is trading at below its true value, meaning that the market sentiment for the stock is currently bearish. This mispricing gives investors the opportunity to buy into the stock at a cheap price compared to the value they will be receiving, should analysts' consensus forecast growth be correct. Compared to the rest of the airlines industry, IAG is also trading below its peers, relative to earnings generated. This bolsters the proposition that IAG's price is currently discounted.

LSE:IAG Intrinsic value, August 21st 2019

Next Steps:

For International Consolidated Airlines Group, there are three pertinent aspects you should further examine:

  1. Future Outlook: What are well-informed industry analysts predicting for IAG’s future growth? Take a look at our free research report of analyst consensus for IAG’s outlook.
  2. Dividend Income vs Capital Gains: Does IAG return gains to shareholders through reinvesting in itself and growing earnings, or redistribute a decent portion of earnings as dividends? Our historical dividend yield visualization quickly tells you what your can expect from IAG as an investment.
  3. Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of IAG? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.