IAG flies higher on BofA Merrill Lynch upgrade

British Airways and Iberia parent International Consolidated Airlines flew higher on Monday after Bank of America Merrill Lynch upgraded its stance on the stock to ‘buy’ from ‘underperform’ with an unchanged price target of 610p.

Overall, the bank reiterated its structurally bearish equity and credit view on the European airlines.

“However, we continue to appreciate that even the most value-destructive companies can have ‘their day in the sun,’ particularly in these increasingly volatile times”.

It upgraded IAG as she shares have over-shot on the downside, ahead of a likely robust fourth quarter earnings update on Friday 26 February.

It said that when it downgraded the stock to ‘underperform’ last summer, the long position had become uniformly consensual among fund managers and Merrill reckoned this homogeneous view was ignoring some significant pricing pressure risks on the North Atlantic, particularly from a reinvigorated Delta-Virgin.

“The shares have since the start of this year fallen around 20%, at a time when we are beginning to annualise (Q2’16) those same Delta-Virgin capacity-addition risks. Moreover, we expect the company to hit FY15 consensus earnings expectations in ten days’ time.”

It added that away from earnings, IAG’s structural story is intact.

At 1116 GMT, IAG shares were up 4.3% to 500.50p.