An increase in the price of petroleum due to tensions in the Strait of Ormuz, where Iranian troops have been performing operations, has caused several problems for International Airlines Group (IAG). Analysts have slashed the company?s earnings per share (EPS) estimates for the current year by nearly 40% since the Iranian army began testing per President Mahmud Ahmadinejad?s orders. Specifically, the amount varies from 387 to 232 million dollars. Thirteen of fourteen assessments conducted by analysts predict that IAG's profits will drop.
The deterioration of the global financial situation also affected IAG's balance sheet. The company's net debt reported by investment firms after increased tensions in the Persian Gulf is also greater than what it was before events heated up, moving from 880 million dollars to 1.513 billion dollars (nearly 1.9 billion euros) in little more than a month.
With things as they are, investment banks with holdings in IAG have lowered their expectations for the airline company, although they still advise holding on to shares. Further, the latest analyst reports are unanimous, putting the latest price objectives beneath the consensus estimate for IAG's valuation given that future losses are expected.
Should the Iranian government close the Straight of Ormez, this threat would cause a major oil shortage across most of the global petroleum market, because nearly a third of the world's maritime oil supply passes through the strait. The price of crude could rise further yet and lead to more profit losses for airlines and petroleum companies.
