IAG share price forms risky pattern ahead of dividend, buyback news

IAG share price continued its strong rally, reaching its all-time high as the company prepared to release its financial results on Friday this week. It has jumped for three consecutive months and is up by over 430% from its lowest level during the pandemic. So, will the stock continue rising or crash after its earnings?

IAG will publish its financial results on February 27

IAG, the parent company of top airlines like British Airways, Iberia, and Aer Lingus, has done well in the past few years, helped by the ongoing revenue and profitability growth.

The most recent results showed that revenue and profitability growth gained momentum in the third quarter of last year, continuing a trend that has been going on for months. It also continued paying its dividends, with its yield standing at 2.1%, while its buyback has continued.

Most importantly, the company has continued to repair its balance sheet following the woes during the pandemic, with the net leverage being 0.8x and the gross 1.9x.

The recent results showed that its revenue was flat in the third quarter at €9.32 billion, while its profit after tax fell by 2.3% to €1.4 billion during the quarter. Also, its nine-month revenue rose by 4.9% to over €25.23 billion, while its profit after tax rose by 15.5% to over €2.7 billion.

This revenue and profitability growth is expected to continue doing well. However, there is a risk that the passenger business struggled because of the performance of the passenger business.

Additionally, the company faced challenges in its North American business, where travel has softened, and competition has remained stiff. The US business will likely remain under pressure after Trump suspended travel from key countries.

IAG maintained its forward revenue guidance and pointed to robust profit growth for the year. It expects that its capacity for the year will jump by 2.5% and that its capital expenditure will be 3.7 billion euros. This growth will be driven by its capacity increases and new routes, including to Kuala Lumpur, Bangkok, Boston, Washington, and Indianapolis.

Most notably, the company will likely announce a new dividend and share buyback policy. It has likely completed the 1 billion euro buyback it announced last year, and the management pledged to announce more returns this month. 

IAG share price technical analysis

The weekly chart shows that the IAG stock price has been in a strong uptrend in the past few months and is now at an all-time high. It has crossed the important resistance level at 441p, confirming a bullish breakout.

The risk, however, is that the company has formed a rising wedge pattern, which is made up of two ascending and converging trendlines. These two lines are now nearing their confluence levels

At the same time, the Percentage Price Oscillator (PPO) has formed a bearish divergence pattern. Therefore, there is a risk that the stock will experience a brief pullback after earnings and then resume the uptrend.