Broker tips: Rightmove, IAG

(Sharecast News) - RBC Capital Markets upgraded Rightmove on Monday to 'outperform' from 'sector perform' but cut the price target to 775p from 805p after the shares fell sharply on Friday as it warned that increased investment in technology and artificial intelligence would weigh on profits. "We think the market has it wrong," RBC said. "Rightmove is not broken, it does not need fixing, however the investments announced today if executed well, should lead to a better bigger business in the years to come."

The bank said it reckons the share price move was an over-reaction to the announcement of Rightmove's decision to accelerate its investment into AI.

"As we mentioned in our note Friday morning we see this as Rightmove putting the money it generates to work, investing today to create higher shareholder returns tomorrow," it said.

"The margin will move down during the investment phase, but there can be no gain without a bit of pain, and we cannot think of another company that would be able to say that there trough operating margin will be 67%... do let us know if you find a higher trough."

RBC noted that estate agents will keep paying their subscriptions and homebuyers will keep looking at Rightmove's website following the announcement on Friday.

"Customer and consumer behaviour won't change, but if the plan works Rightmove will end up changing the game by offering more products and services to estate agents, housebuilders and other home moving related services providers (there by growing revenues) and offering the end user more tools and toys to keep them coming back for more (strengthening further the network effects that underpin Rightmove's success)," it said.

"There are also risks that AI could replace Rightmove, but in that case surely it's better Rightmove is in the game than watching from the sidelines.

"We also would suggest that it if the last 25 years teach us anything it is that it will be harder than the bears think for estate agents, housebuilders and homemovers to be weaned off Rightmove, or to kick their Rightmove habit."

Panmure Liberum also upgraded Rightmove, to 'buy' from 'hold' after Friday's announcement.

"A surprise investment programme focused on AI, coupled with a cut to medium-term revenue guidance, has justifiably damaged the shares," Panmure said.

"Following the AI selloff earlier this year, the latest move leaves Rightmove's shares 30% down from their August peak, when we cut to hold.

"We reduce our revenue growth rate to 8% for FY26 and FY27, which we believe the business can comfortably deliver. Including the investment programme in full, we are now forecasting EBIT margin decline to 65% in FY27E, and expect this will fall further in outer years given increased capex - our DCF assumes 60% terminal."

Panmure, which cut its price target on the stock to 660p from 790p, said that with the second investment programme in two years, the shares are now discounting a scenario behind even its cautious forecasts.

"Credibility will take time to rebuild, but for now 18.6x PER and 13.7x EBIT price in enough caution that we upgrade to buy," it said.

JPMorgan reiterated its 'overweight' rating on IAG despite the BA and Iberia owner's weaker-than-expected third-quarter results last week.

"IAG missed Q3 25 expectations driven by softer than expected yields, including a weaker Transatlantic, and despite our expectations did not announce a new share buyback," it said.

"While this was disappointing, we expect a positive Q4 earnings trajectory driven by sequentially improving revenue/costs, allowing for increasing capital returns, which are likely to be announced with the full-year results in February 2026."

JPM said its 2025/26/27E EBIT estimates are broadly unchanged, with slightly lower ex-fuel offsetting higher fuel costs for 2025E.

The bank said its unchanged price target of €5.50 implies more than 30% upside.

JPM said it sees three areas of opportunity in the near term. It noted that booked revenue is ahead for the fourth quarter and said it sees scope for improving Transatlantic demand, supported by continued constrained supply, to drive an increase in underlying pricing versus Q3.

JPM also said it expects strong unit cost control to continue into Q4, where it forecasts ex-fuel CASK -1.4%.

Finally, the bank said IAG's strong financial position can support increasing capital returns, with its base case a €1.5bn buyback announced at the FY25 results.

JPM said it sees the current valuation as compelling at 5.5x 2026E price-to-earnings and a 14% free cash flow yield.

"IAG remains on the 'Analyst Focus List' and is our top pick within the European Airlines," it said.