Analysts have thrown their support behind British Airways' parent company, International Consolidated Airlines Group (IAG), while cautioning investors to steer clear of budget airline Wizz Air in 2025.
Panmure Liberum analysts have selected IAG shares as their top choice within the transport sector, setting a target price of 500p against its current share price of 287p, as reported by .
IAG was the best performing FTSE 100 stock of 2024, nearly doubling in value over the course of the year. The airline embarked on a £7bn transformation plan last year, with analysts expressing confidence in its potential for success.
"Despite being one of the best performing stocks in 2024, we still see further significant upside potential at IAG," stated Gerald Koo, an analyst at Panmure Liberum. He added that 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. 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.
On the other hand, Wizz Air was chosen 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 expressed concern about Wizz Air’s high leverage and low earnings quality.
The budget carrier is grappling with a net debt to operating profit ratio of 4.2 times, a figure analysts have labelled as "uncomfortably high," particularly when contrasted with other low-cost airlines that boast 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," Koo observed.
He also pointed out that a significant chunk of Wizz Air's earnings come from less reliable sources, notably profits from the sale and leaseback of aircraft.
