JP Morgan remains bullish on IAG as profit outlook and cash returns improve

JP Morgan reiterated its 'overweight' recommendation on International Consolidated Airlines Group (IAG) and maintained its €5.50 price target, citing better-than-expected second-quarter results driven by strong pricing and cost discipline. The bank raised its 2025 operating profit estimate by 3% to €5.03bn, 5% above consensus, and now forecasts a record 15% EBIT margin for 2025, anticipating lower second-half pricing to be offset by cost reductions. JPM expects further shareholder returns, including potential dividend increases and a new share buyback, at the Q3 update, reinforcing IAG as a top pick due to robust transatlantic and European short-haul demand.

Analysis

JP Morgan has reiterated its 'overweight' recommendation for International Consolidated Airlines Group (IAG), underpinned by a second-quarter performance that surpassed market expectations on stronger pricing and cost discipline. The bank has consequently raised its 2025 operating profit forecast by 3% to €5.03 billion, positioning its estimate approximately 5% ahead of the Bloomberg consensus. This upward revision supports a projection for a record 15% earnings before interest and tax (EBIT) margin for 2025. While IAG's management has guided towards softer pricing in the second half of the year, JP Morgan anticipates that this will be effectively offset by lower costs. A key forward-looking catalyst is the potential for enhanced shareholder returns, with the bank expecting an announcement on an increased dividend and a new share buyback program at the third-quarter update. Supported by robust demand in transatlantic and European short-haul markets, JP Morgan's analysis, including a €5.50 price target implying nearly 30% upside, solidifies IAG's position as a top pick.

Key Decisions for Investors

• Investors with a bullish view on the airline sector could view JP Morgan's above-consensus profit forecast and 30% implied upside as a strong validation for maintaining or initiating a position in IAG.
• It is crucial to monitor the company's third-quarter results for confirmation of the expected dividend increase and share buyback program, which are likely to act as significant near-term catalysts for the stock.
• Traders should closely watch for any signs that cost-saving measures are not materializing as expected, as this would challenge the thesis that lower costs can fully offset the guided-for moderation in second-half ticket pricing.