On Wednesday, Bernstein analysts maintained a positive outlook on several European airline stocks, highlighting Ryanair, IAG, and Wizz Air in particular. According to the firm, Ryanair (EXCHANGE:RYA) continues to excel, with a transformation into a cash return stock as capital expenditures decrease. The airline is expected to generate an average of €2-€2.5 billion in free cash flow per annum. Ryanair's target price stands at €22.50.
IAG (EXCHANGE:IAG), known for its quality business model and network strategy, has been favored due to its focus on the Americas and the absence of competition from Norwegian's long-haul low-cost flights from London. The airline group, currently valued at $18 billion, has demonstrated robust financial performance with a P/E ratio of 6.06 and an impressive YTD return of 88.64%.
Although the Air Europa deal was canceled, IAG's buyback program is expected to provide additional earnings per share accretion. The target price for IAG is set at £2.70. According to InvestingPro, the company maintains an "EXCELLENT" financial health score of 3.84, with 12 additional exclusive insights available to subscribers.
Wizz Air (EXCHANGE:WIZZ), with its significant growth potential and efficient operating model, is positioned to expand in the high teens annually through the rest of the decade. Despite recent challenges with engine groundings, the airline's unit cost is anticipated to recover as growth returns. Wizz Air's target price is £42.50.
Furthermore, Air France-KLM (EXCHANGE:AF) has undergone a substantial transformation, resolving labor issues and streamlining its fleet, which has allowed it to finally earn its cost of capital. With opportunities for further cost reduction, the group's target price is €14.00.
In contrast, easyJet (EXCHANGE:LON:EZJ) and Lufthansa (EXCHANGE:LHA) were both given a 'Market-Perform' rating. easyJet, characterized as a hybrid carrier, faces risks from increased legacy airline competition and has a target price of £6.20. Lufthansa is challenged by its exposure to corporate travel and Asian long-haul markets, with a target price of €7.00.
The analysts noted that while Lufthansa has initiated transformation plans, it needs to maintain discipline on capacity to restore margins. For comprehensive analysis of these airlines and over 1,400 other stocks, including detailed Fair Value assessments and financial health metrics, consider accessing InvestingPro's exclusive research reports.
In other recent news, International Airlines Group (LON:ICAG) (IAG) has reported a successful third quarter.
The company experienced a 7.9% increase in revenue and a 15.4% rise in operating profit, surpassing €2 billion. The group, which includes British Airways, Iberia, and Aer Lingus, also saw a decrease in net debt and announced a €350 million share buyback program. Despite challenges due to industrial action affecting Aer Lingus, other airlines in the group reported strong performances.
IAG's revenue growth was driven by strong demand in North America, Latin America, and intra-Europe, leading to a 1.2% increase in passenger unit revenue. British Airways notably improved its operating profit by £251 million, achieving a 20.7% margin. However, Aer Lingus faced a €57 million drop in operating profit due to industrial action.
Looking ahead, IAG has plans for capacity growth and shareholder rewards. The company anticipates a 5% capacity growth in Q4 and expects to maintain a robust financial performance.
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