IAG double-upgraded to Overweight from Underweight at Morgan Stanley

Morgan Stanley analyst Conor Dwyer double-upgraded IAG to Overweight from Underweight with a price target of EUR 2.80, up from EUR 2.10. The firm downgraded the stock in January amid pricing risks due to high scheduled capacity growth in North Atlantic – the company’s key profit centre, but the near-term capacity tightness in key markets and fare data now look increasingly supportive to pricing, the analyst tells investors in a research note, adding that Morgan Stanley now sees limited scope for high competitive capacity growth in Heathrow and the European widebody market. The firm also notes that IAG is now trading on a P/E and EV/EBITDA multiples of just 3.9-times and 3.2-times – discounts of 40% and 30% historically – and while a cheap valuation is not rare in airlines currently, IAG has a much clearer pathway to earnings upgrades than many names in the industry.