IAG share price takes off as BofA Merrill Lynch turns bullish on stock

Shares in International Consolidated Airlines Group (LON:IAG) have gained more than four percent in today’s session, outperforming the broader London market, with Bank of America Merrill Lynchturning bullish on the British Airways and Iberia parent. The analysts argue that the group’s shares have been oversold ahead of a potentially robust full-year update later this month.

As of 13:25 GMT, IAG’s share price had added 4.86 percent to 503.14p, outperforming the blue-chip FTSE 100 index which currently stands 2.20 percent higher at 5,833.27 points. The shares have lost 17.61 percent of their value in the year-to-date, as compared with a 6.56-percent fall in the Footsie.
BofA Merrill Lynch raised its stance on the British Airways owner from ‘underperform’ to ‘buy’, while keeping its price target on the stock at 610p. While the bank maintained its structurally bearish equity and credit view on the European airline, it noted that “even the most value-destructive companies can have ‘their day in the sun,’ particularly in these increasingly volatile times”.

The bank explained that when it downgraded IAG to ‘underperform’ last summer, the long position had become uniformly consensual among fund managers, and Merrill reckoned that this homogeneous view was ignoring some significant pricing pressure risks on North Atlantic routes, particularly from a reinvigorated Delta-Virgin partnership.
“The shares have since the start of this year fallen around 20 percent, at a time when we are beginning to annualise (Q2’16) those same Delta-Virgin capacity-addition risks,” the analysts were quoted as saying today. “Moreover, we expect the company to hit FY15 consensus earnings expectations in ten days’ time.”
Analysts at Societe Generale have also been upbeat on IAG’s prospects, reiterating their ‘buy’ stance on the stock last week, with a price target of 750p. JPMorgan Chase & Co, which is bearish on the British Airways owner, meanwhile trimmed its valuation on IAG from 370p to 260p.
IAG is scheduled to update investors on its full-year performance on February 26.
As of 14:30 GMT, Monday, 15 February, International Consolidated Airlines Grp share price is 502.75p.