Proactive Investors - British Airways owner International Consolidated Airlines Group (LON:ICAG) and easyJet PLC (LON:EZJ) have been given higher share targets and tipped as ‘buys’ over the potential for further growth headroom.
Airlines are still “in the early stages of recovery from the pandemic”, said Liberum analyst Gerald Khoo in a note on Tuesday.
He cited positive factors for the sector being “relatively careful” plans from companies to grow capacity, moderating and stabilising jet fuel prices and “encouraging” recent commentary about forward bookings.
However, he conceded that some macroeconomic indicators are deteriorating, including “horrific” consumer confidence, falling GDP forecasts and worsening PMIs.
“We see headroom for the demand/supply balance to remain favourable with capacity mostly still below 2019 levels,” he said.
Budget airline easyJet is seen as offering the best risk/reward balance at the sector's current share price levels, with upside from its Holidays arm, seasonal pilot contracts and aircraft redeployment all “underappreciated”.
The analyst raised his target price for easyJet to 500p from 430p (last close 450p), while for IAG it was raised to 220p from 145p (last close was 162.38p)
IAG’s valuation “appears consistent with mid- or even latecycle earnings, despite the industry being in only the early stages of recovery”, said Khoo.
Macro risks are “more than priced in” at the shares current levels, with the FTSE 100-listed group’s positioning based on the leading hub airports for transatlantic traffic, extensive route networks and attractive origin and destination flows all “remain intact”.
Ryanair Holdings PLC (LON:RYA) was also reiterated at ‘buy’, but its shares are seen as offering “less re-rating potential”.