IAG shares tipped to reach record high
A full recovery from the Covid crash may not be the end of the story, according to one City analyst who thinks the shares are still good value and worth much more.
12th February 2026 15:33
by Graeme Evans from interactive investor
The scope for a re-rating of International Consolidated Airlines Group SA (LSE:IAG) has been flagged after a leading City bank described the British Airways owner as a “premium company at economy multiples”.
Bank of America believes that shares deserve to be more than 30% higher at 560p, even though they have already tripled in two years on the back of strong earnings growth.
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It points out that the FTSE 100-listed stock still trades on 6.3 times forecast 2026 earnings, which represents a discount to peers on both sides of the Atlantic.
The bank said: “This looks unjustified to us given IAG’s industry-leading margins and returns, strong cash generation even with fleet investments, and solid balance sheet. We see scope for further re-rating.”
The new price target implies a multiple of eight times forecast 2026 earnings.
This narrows the discount to US carriers and compares with a current forward multiple of 11.5 times for Ryanair, whose ultra‑low‑cost, asset-light model structurally supports the highest returns in the sector.
The bank adds that IAG’s current forward price/earnings discount of about 4% to Deutsche Lufthansa AG (XETRA:LHA) is significantly below the historical average of a 19% premium.
Potential IAG catalysts in BofA’s report focus on upgraded medium-term margin guidance and the prospect of growth in share buybacks from the 1.5 billion euros it expects in 2026.
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The bank has upped its share buyback forecast for 2027 to two billion euros, which it said reflects a strong balance sheet and forecast for three billion euros of annual free cash flow.
More details on the outlook for cash returns are likely in IAG’s annual results on 27 February.
Shareholders last year received their first full-year dividend since 2019 with June’s distribution of six eurocents, which was followed by an interim award of 4.8 eurocents in early December.
Today’s report highlights IAG’s best-in-class margins versus European and US network peers.
The operating margin was 15.6% in third-quarter results and is on track for 15.1% across 2025, which is at the top end of 12-15% medium-term guidance. This compares with the 5% posted by Lufthansa and 6.5% at Air France-KLM (EURONEXT:AF) in their most recent updates.
BofA believes IAG’s 15%-plus margin is sustainable in 2026-28, given the company’s strong performance on cost control, its exposure to an improving transatlantic market and contributions from asset-light segments such as holidays and loyalty.
The loyalty business has evolved into a major strategic pillar for the group, shifting from a support function into its third‑largest profit contributor behind BA and Iberia.
The group is due to focus on this segment at an investor day planned for May, which BofA said could act as an opportunity to adjust medium-term margin guidance.
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The bank’s expectations for an improved North Atlantic performance follow weaker European travel to the US and main cabin softness in summer 2025.
The report said: “We expect a rebound in 2026, driven by healthy US leisure demand and recovering corporate travel on both sides of the Atlantic.”
It pointed out that Delta Air Lines Inc (NYSE:DAL), United Airlines Holdings Inc (NASDAQ:UAL) and American Airlines Group Inc (NASDAQ:AAL) have recently reported upbeat performances on transatlantic routes in their fourth-quarter results.
Demand should strengthen further in the run-up to the FIFA World Cup, with an estimated 1.3 million international arrivals about 10% above the typical US visitation level for June and July.
In addition, the bank’s analysis shows that IAG capacity is rising at a time when industry supply remains constrained.
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