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In mid-January, the International Atomic Energy Agency verified that Iran had met its obligations to restrict its nuclear program, which marked the final step in the process to lift international sanctions that had been imposed against Iran.
The big news in the investment community is that Iran can now freely sell its own oil in the international market. However, there are other far-reaching implications.
First, it was strictly nuclear-related sanctions that were lifted. There are still human rights sanctions that prevent U.S. companies from doing business with Iran – except those in the aviation business. Hence, airline makers have a unique advantage. Another thing to note is that non-U.S. businesses that do business with Iran will no longer be penalized by U.S. authorities.
Second, Iran will have more money. The lifting of the sanctions will unfreeze funds – said to be upward of $100 billion – that were trapped abroad. Plus, Iranian companies will now have access to international markets for financing.
Iran will be using a lot of this money to upgrade its airline fleet. It has an aging fleet that’s been further hurt by a shortage of parts due to the sanctions. As a result, Iran has had a number of fatal plane crashes over the last few years. The average age of Iran’s planes is over 25 years old – twice the international average.
Top Iran Plays
With the lifting of Iran sanctions now official, companies that should see an immediate lift are aircraft makers. That includes Boeing (NYSE: BA). Iran is looking to buy 100 planes from Boeing in the near term.
Boeing shares are also down 15% year-to-date. It trades at an enticing 12 times next year’s earnings estimates. Compared to other major airline and defense companies in the U.S., Boeing offers the highest dividend yield and return on capital – coming in at 3.6% and 32%, respectively.
Boeing is still one of best ways to play the market, but let’s not forget about a couple other airline companies already benefiting. Iran has a deal to immediately buy eight A380 superjumbo jets from Airbus (OTC: EADSY), which will be delivered before 2019. And then it has a deal for another 127 Airbus jets to be delivered over time.
Iran has also already placed regional aircraft orders with Embraer (NYSE: ERJ). It’s a much smaller play, about one-fortieth the size of Boeing in terms of market cap. Embraer shares are down 20% over the last year, since it does have a lot of exposure to the troubled country of Brazil. However, with a valuation of just 12 times forward earnings, Embraer is worth a closer look.
In terms of Airbus, it’s considered Boeing’s major rival. One angle that makes the Europe-based company interesting for investors is its focus on Asia, which is one of the largest and fastest growing travel markets in the world.
It might still be too early to invest directly in Iran, but investors can benefit from the lifting of Iran sanctions in the near term through select aircraft makers.
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