Is now-profitable IAG the top airline buy among FTSE 100 stocks?

FTSE 100 stocks are well represented in my portfolio. and International Consolidated Airlines (LSE:IAG) — more commonly referred to as IAG — is one of them.

So let’s take a look at this airline’s stock after the company reports earnings on Friday.

Investors were disappointed

Shares in IAG fell on Monday morning despite showing good financial results in 2022. The British Airways the owner swung back to profit as revenue surged in the rebound in international travel during the year.

It generated an operating profit of €1.26bn in the 12 months to 31 December 2022 – an impressive change from an operating loss of €2.8bn in 2021. Revenues pushed up to €23.1bn. The recovery is a direct result of the lifting of Covid restrictions and travel demand.

However, investors may be expecting more, and there has been no announcement of dividends. However, IAG announced a €400m deal for the remaining stake in Air Europa that it did not already own.

In its earnings report, IAG predicted profits for 2023 in the range of €1.8bn-€2.3bn, if conditions continue to improve. The group noted that forward bookings were strong, and received generally positive notes.

However, it should be noted that the forecast depends on the presence “There are no other setbacks related to Covid-19 or the material impact of geopolitical developments”. IAG also confirmed that fuel costs will increase by 30% from the Russian invasion of Ukraine in 2022.

Heathrow Airport is also proving to be a problem for the group in 2022. B.A implemented only 70% of the 2019 schedule at the end of the year, compared to 87% in Aer Lingus and Iberiaand 98% in Vueling. The airport – which is BA’s base – is suffering from staffing and resource problems.

Meanwhile, some analysts have suggested that the price paid for the remaining stake in Madrid-based Air Europa is attractive. However, the group insists that it is part of a larger plan to transform the Spanish capital “to compete with Europe’s biggest hubs”: Amsterdam, Frankfurt, Istanbul, London Heathrow and Paris CDG“.

The move, IAG hopes, will unlock, create new routes and opportunities in Latin America.

So IAG bought it?

There are certainly concerns about debt, which stands at 3.1 times cash profit. However, as Sophie Lund-Yates in Hargreaves Lansdowne noted: “Whether enough passengers continue to be channeled to the plane, that’s it [debt] should start going down fast.” The group is also sitting on a cash pile of €9.6bn.

Personally, I’m not worried about the impact of Covid going forward. It appears that the virus will not have a material impact on the industry.

There are some positive catalysts as well. Travel demand remains high, European economic growth appears stronger than anticipated, and commodity and fuel costs are down from their highs.

So, with the share price down to 160p after the results, I want to buy more and hold on for the recovery.