International Consolidated Airlines Group or IAG (LSE:IAG) shares have pushed higher since I sold my holding, but not by much. For me, the volatility simply wasn’t worth it and I chose to focus my aviation investments on other stocks.

But was I wrong to do so? Let’s take a closer look.

The valuation picture

IAG as it’s known currently looks relatively cheap based on its forward earnings multiples, trading at a price-to-earnings (P/E) of around 6.3 times in 2025, dropping to 5.84 times in 2026 and further to 5.3 times in 2027.

This lowly valuation largely reflects the cyclical nature of the industry and investor caution about the industry’s prospects. However, it also signals potential value given IAG’s expected earnings growth, with EPS rising steadily from €0.63 in 2025 to €0.75 in 2027.

The dividend yield is modest but improving, forecast at 2.74% in 2025, increasing to 3.14% in 2026 and 3.4% in 2027, supported by conservative payout ratios ranging from 16% to 18%. This suggests dividends are sustainable and have room to grow.

However, investors should be mindful that IAG carries a fair amount of debt. Net debt is expected to decrease from €6.9bn in 2025 to €3.8bn by 2027. While this deleveraging trend is positive, the relatively high leverage still poses risks, especially in a cyclical and capital-intensive industry like airlines.

Overall, IAG presents a compelling value proposition but with a balance of opportunity and financial risk that investors need to consider carefully. This net debt position could prove more problematic if oil prices, for example, were to surge again.

What analysts think

Analysts currently have a consensus rating of Outperform on IAG, with the average share price target sitting about 17% above the latest closing price. While analyst targets can certainly be wrong and are no guarantee of future performance, such a positive spread is generally an encouraging sign, reflecting confidence in IAG’s earnings recovery and outlook.

The range of targets is wide, indicating a mix of optimism and caution, but the fact that the average sits well above the current level suggests that the market may be underestimating IAG’s potential. For investors, it’s a signal worth noting, even if not a certainty.

Diversification

IAG offers investors genuine diversification through its portfolio of leading airline brands, including British Airways, Iberia, Aer Lingus, Vueling, and LEVEL. This multi-brand approach allows the group to serve a wide range of markets, from premium long-haul and transatlantic routes to low-cost European and domestic flights. 

The group’s extensive route network covers over 270 destinations globally, and its joint ventures and alliances further extend its reach to North America, South America, Asia, and beyond. IAG also caters to different passenger segments with multiple travel classes, from economy to premium cabins, and benefits from strong loyalty programmes. This can help defend market share and pricing power. 

While IAG is, in my view, a quality airline stock with impressive reach and resilience, I’m happy with my decision to allocate more to Jet2. The low-cost airline stock has surged from its lows, and I was able to capitalise on that recovery. This has delivered strong returns for my portfolio. So, I have no regrets from that perspective.

Nonetheless, I may be willing to reallocate funds back to IAG if an opportunity emerges. It’s certainly a stock worth considering.