Is Now the Time to Buy International Consolidated Airlines?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at International Consolidated Airlines  (LSE: IAG  ) to determine whether you should consider buying the shares at 208 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Year EPS Growth

Projected P/E

PEG

Yield

3-Year Dividend Growth

Dividend Cover

IAG

208p

N/A

16.9

N/A

0%

0%

N/A

The consensus analyst estimate for next year's earnings per share is 12.3 pence (60% fall) and dividend per share is 0 pence (no growth).

Firstly, I should say that IAG made a significant loss during both 2009 and 2010 so it is not possible for me to calculate a three-year earnings-per-share growth rate. Furthermore, IAG has not offered a dividend since 2008 so it is also impossible for me to calculate a three-year dividend growth rate.

However, the group is currently trading on a projected P/E of 16.9, which makes IAG appear slightly more expensive than its peers in the travel and leisure sector, which are currently trading on an average P/E of around 16.3.

Unfortunately, IAG's P/E and negative near-term growth rate give a negative PEG ratio, which again cannot be of any help with my analysis.

IAG looks expensive, what about future growth?
The last few years have been hard for IAG. Unfortunately, the group is still having problems with its second airline Iberia.

You see, Iberia has been losing money for the group since 2008 and these losses have significantly reduced IAG's profitability. Indeed, I can see during the nine months ending September 2012 that Iberia reported a €262 million loss, which wiped out most of the profits from the rest of the group. In fact, the profit for the whole group including Iberia's losses was €17 million, representing just 0.1% of total revenue!

That said, at least IAG's flagship British Airways brand produced strong profits of €286 million over the same nine-month period.

Nonetheless, IAG is seeking to curtail Iberia's losses with a recently announced turnaround plan. I believe this plan is focused on reducing Iberia's plane fleet and concentrating more on highly profitable core flight routes.

In addition, IAG also faces rising fuel costs. In particular, IAG saw fuel costs increase 24% during the first half of 2012.

What is of concern for me is that, due to Iberia's troubles and spiralling fuel costs, I believe the group is having to borrow money significantly -- in fact, the group announced debt grew an alarming 32% during the first six months of last year.

Overall, based on the share price's apparently high valuation and the significant headwinds the group is facing, I believe now does not look to be a good time to buy IAG at 208 pence.

More FTSE opportunities
Although I feel now may not be the time to buy IAG, I am more positive on the FTSE shares highlighted in "8 Dividend Plays Held By Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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