Jefferies highlights buying opportunities at IAG and Ryanair

28th Aug 2014 11:17

"Sentiment [is] trumping fundamentals" in the UK airline sector, according to Jefferies, which recommended investors to see dips as an opportunity to revisit its two preferred names of IAG and Ryanair.The broker said that a better-than-expected update from IAG should have given some immediate relief to the sector on 1 August.However, stocks are being swayed by the Ebola outbreak, Icelandic volcano and ongoing geopolitical tensions."A lull in reporting means external factors, not fundamentals, will continue to be the bigger near-term share price driver," said analysts Mark Irvine-Fortescue and Ian Rennardson.IAG, they said, continues to stand out amongst flag carriers in terms of operational and financial performance as well as "structural superiority". They see a "multi-year opportunity developing" with a dividend probable in 2015, but possible in 2014.As for Ryanair, the airline is Jefferies' top pick in the low-cost carrier space.The analysts said: "[Ryanair's] share price has not kept pace with earnings expectations, and fails to recognise the self-help opportunity from commercial changes, in our view. We expect the roll out of customer-friendly initiatives to catalyse outperformance in a competitive trading environment."Jefferies has a 'buy' rating for both stocks.IAG and Ryanair were trading down 1.9% and 1.6% on Thursday morning, respectively.BC