IAG share price is 83.8% undervalued, DCF calculation shows

The IAG (LON: IAG) share price has remained in a consolidation phase in the past few weeks as concerns about the company continues. The shares were trading at 160p, a few points below the year-to-date high of 173.65p. In all, the stock has roared by more than 77% from the lowest point in 2022.

Heathrow strikes ahead

IAG, the parent company of British Airways, is facing substantial risks in the next few months because of the upcoming strikes in Heathrow Airport. The airport’s security officers are set to start striking in the coming month. The 2,000 employees are expected to stroke for 31 days during Summer.

Most of these strikes are set to happen in Terminal 5, an important terminal that is used by some of the biggest airlines in the airport including British Airway and Emirates. While the strikes will hit other airlines, British Airways will be more affected since Heathrow is its home base. BA is the biggest revenue generator for IAG.

The strikes could mean that the company’s growth will slowdown in the coming months. The most recent results showed that the company’s revenue jumped from over £3.4 billion in the three months to March last year to over £5.8 billion this year.

The company’s loss after tax dropped from over £787 million to £87 million. Most importantly, the company said that its net debt has dropped from £10.3 billion to £8.3 billion.

IAG is a bit undervalued compared to other companies in the industry. Data shows that the company has a PE ratio of 8.1x compared to the overall average of 12. Additional data compiled by Simply Wall Street shows that the fair value of 979p, signaling that it is about 83% undervalued as shown below.

IAG DCF valuation

IAG chart by TradingView

The daily chart shows that the IAG stock price has been in a bullish trend in the past few weeks. It has moved above the 50-day exponential moving average (EMA). The shares are also slightly above the important support level at 141.50p, the highest point in November.

Further, the Relative Strength Index (RSI) has moved above the neutral point at 50. The volume of the stock has been falling since peaking in March. Therefore, the outlook for the stock is neutral with a bearish bias since it has formed a rising wedge pattern. If this happens, the next level to watch will be at 141.50p.