Investing.com -- Stifel analysts on Friday reshuffled their ratings on European airline stocks.
According to the investment bank, the airline industry's enforced capacity discipline, which is expected to continue into 2025, as a key factor influencing their revisions.
The firm pointed out that the European long-haul market is set to see a 3.5% year-over-year capacity growth this summer, a decrease from last summer's 4.6%. The short-haul market is also experiencing slower growth compared to previous seasons.
“Overall, we believe these capacity growth trends remains well aligned with demand, supporting load factors, yields and profits also in 2025,” analysts said in a note.
Stifel upgraded International Airlines Group (LON:ICAG) (IAG) to Buy from Hold, with a new price target (PT) set at €5.00, raised from the previous €2.50.
IAG, the parent company of British Airways, among others, is anticipated to benefit from a favorable summer capacity situation, with only a 1.5% increase in seat growth on its routes.
Stifel expects IAG to outperform pre-pandemic margin levels, driven by pricing strength and cost transformation initiatives at British Airways. The group's margin is projected to reach 13.6% this year and 14.3% by 2028.
“With >€1bn excess cash generated p.a. we believe additional share buybacks are likely, further bolstering the already solid 5% yield from regular dividend payments,” analysts noted.
“The share trades broadly in line with the sector and at a ~50% discount to prepandemic levels,” they added.
Meanwhile, Ryanair (NASDAQ:RYAAY) stock rating was downgraded to Hold from Buy, and its PT was trimmed to €20.00 from €21.00.
The downward revision comes after a strong six-month share price performance of approximately 40%. It reflects a narrowed shorter-term valuation upside and concerns over the impact of recent US dollar strength, as about half of the company's cost base is USD-denominated.
Moreover, Stifel expressed caution regarding Ryanair's “erratic” guidance approach, which could pose risks heading into the Q3 reporting.
Despite the downgrade, analysts remain positive on Ryanair's long-term investment case, highlighting the airline's rising free cash flow and long-term earnings growth based on cost leadership and market share gains.
Ryanair's shares continue to trade at a significant premium compared to its peers, although it is still lower than pre-pandemic levels.
Alongside Ryanair, Stifel also downgraded Air France KLM (EPA:AIRF) to Hold from Buy. While the stock remains a play on KLM’s turnaround, Transavia’s progress, and Air France’s structural improvements, the 2028 EBIT target appears unlikely due to cost inflation, with Stifel modeling only around 20% of it.
Moreover, after Olympic-related disruptions in 2024, 2025 also faces uncertainties, the firm said.