IAG shares: 5 reasons to buy (and not buy) in 2023!

At International Consolidated Airlines Group (LSE:IAG) share price fell by a mid-teens percentage point during 2022. But it recovered strongly in the second half and City analysts are now slowly positive on FTSE 100 stock.

Out of 13 analysts with a rating on IAG shares, eight rate the company as a ‘buy’, four are neutral British Airways owner, when one has put ‘sell’ on it. That’s according to stock screener Digital Look.

So should an investor like me buy shares of the travel giant for my portfolio?

2 reasons to buy

Like legendary investor Warren Buffett, I love a bargain. So I find the rock-bottom valuation on IAG shares fascinating.

City analysts expect flyer earnings to explode 276% in 2023. Another 85% increase is also predicted next year. Consequently, the low price-to-earnings (P/E) ratio of 9.6 times for this year drops to a measly 5.2 times for 2024.

The travel industry is recovering rapidly after the coronavirus crisis. And IAG can also be considered one of the best ways to exploit this, because of its wide wingspan.

I mean, the business has exposure to the fast-growing budget sector as well as the lucrative transatlantic market. It serves the former with its Vueling and Aer Lingus brand, and the most famous end over British Airways.

Rumor has it that the FTSE company also has plans to continue building that scale. It builds 20% of the stock in cheap European water over the summer and a full takeover can be opened soon.

A larger group will provide more opportunities to profit from long-term growth in the civil aerospace market. The International Air Transport Association (IATA) expects passenger demand to increase in all regions in the coming decade.

3 reasons not to buy

IAG shares have long-term potential. But investors should also consider the high level of corporate debt. This is down, but net debt is still above €11bn in September.

These debt servicing costs look set to continue to rise, as central banks raise interest rates to combat inflation. That level of debt can also hamper the company’s growth plans.

I am very concerned about IAG debt, given the uncertain market outlook in the short to medium term. A recovery in air travel could create a buffer as the global cost-of-living crisis deepens.

Profit forecasts at IAG are also in jeopardy due to rising labor and fuel costs. This could be a major obstacle in 2023 as workers struggle to make ends meet and the war in Ukraine continues. Airline margins are notoriously thin.

Verdict on IAG shares

So when I discovered IAG’s share price was so low, I still wasn’t tempted to buy the FTSE company. I prefer to invest in other cheap UK stocks for 2023.