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Morgan Stanley revises profit estimates for IAG higher

Alexander Bueso

LONDON (ShareCast) - (ShareCast News) - IAG stands to gain from recent favourable developments in fuel prices, foreign exchange and as a result of the consolidation of Aer Lingus (Other OTC: AELGF - news) , turning it into Morgan Stanley (Xetra: 885836 - news) 's 'top overweight' in the sector. The combination of the above factors led Penelope Butcher and her team of analysts to raise their forecasts for operating earnings on an EBIT basis by 3% for 2015 and by a further 7% and 4.5% for the following two years.

Aer Lingus's contribution to the bottom line was then factored in, but not the cost savings which are expected to be generated from the tie-up of both companies.

That left them 20% ahead of the analyst consensus for 2016 and 2017.

However, their peers were probably not yet fully reflecting both the full consolidation of Aer Lingus and recent developments in fuel/FX metrics, the analysts said in a research note sent to clients and dated 22 September. On the back of the above, the broker upped its target price for the stock to €10 from €9.15 previously.

Its recommendation on the shares was kept at overweight. Besides 3Q15 trading momentum we see further opportunities for synergies, costs, cash flow and product leverage to be presented at CMD on 6 November.