BUY HOLD SELL – Qantas Airways (ASX: QAN)
Qantas Airways (QAN) upgraded profits to between $1.35bn and $1.45bn in a market update yesterday. The upgrade is a $150m increase from previous forecasts for the first half of 2023.
The company has had a strong rebound from its COVID lows, with increased profit and revenue guidance for the first half of 2023 as travel demand continues to remain robust ahead of other spending categories. Net debt is expected to decrease between$2.3bn and$2.5bn by 31 December 2022, which is a considerable decrease on the previous forecast, around $900m less, as revenue continues to accelerate, and demand continues to rise.
Qantas has noted that fuel costs remain significantly elevated compared to FY19 and are expected to reach approximately $5bn for FY23. Other notable events were the $400m share buyback announced in August, which is now 76% complete at an average price of $5.66. Qantas is also rapidly increasing capacity and continues to run sales promotions, experiencing rapid growth in its loyalty program.
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Fundamentals
Charting Qantas paint a clear picture of a company in a
strong uptrend, with the company experiencing a
strong rebound from its 52-week low in June of 421c. Qantas is trading on a
PE of 7.8x with an
ROE of 463.5%. This is a considerable turnaround and highlights the strength of the recovery over the last year for the group.
EPS growth is expected to be 206% this year before levelling out to 11% and 10% in the next two years. But this should be expected, given the group has made losses for the last two years, tapping the market just to stay afloat. The
yield is only 2.0% this year, which grosses up to 2.9%, but is expected to increase to a
6.0% gross yield next year and continue increasing in the coming years. The stock is approaching overbought territory, with a current RSI of 66.69, anything over 70 is considered overbought. Given the recent move in the share price, we can likely expect to see some profit taking creeping in soon.
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Broker Updates
Only a couple of broker updates out on the latest announcement, with UBS commenting that “cash flow is flying”. Macquarie has taken a more cautious view saying that while the company is performing well in the short term and demand is outstripping supply, the medium to long-term outlook remains uncertain with the increasing costs of living and reduced discretionary spending. The overall outlook in the short term is favourable, with Qantas trading at a 20% discount to pre-COVID levels “despite being a better business.”
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Conclusion
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