Is the reopening already priced into ASX 200 travel shares?

two older men wearing colourful tropical patterned shirts and hats like tourists puzzle over a map one is holding while he other holds up a hand as if indicating he doesn't know where they are going.

S&P/ASX 200 Index (ASX: XJO) travel shares are putting in a mixed performance today.

Webjet Ltd (ASX: WEB) has dipped into the red, currently down 0.35% to $5.67 per share.

The Qantas Airways Ltd (ASX: QAN) share price, meanwhile, is lifting. Qantas shares are up 0.29% to $5.275 per share.

This comes as the S&P/ASX 200 Index (ASX: XJO) is holding onto its own gain of 0.65%.

That’s today’s price action.

But with Australia looking to reopen domestic and international travel, what’s the outlook for ASX 200 travel shares for 2022?

For some expert insight into that question we turn to Paul Xiradis, head of equities at Ausbil Investment Management.

Another year of strong earnings growth

According to Xiradis, “The outlook for FY22, particularly from late calendar 2021, is for another year of strong earnings growth from select cyclicals…”

Xiradis noted this is particularly true for companies exposed to services, including ASX 200 travel shares:

We are of the view that forward estimates for the next two years will be upgraded, driven by an under-appreciated pick-up in activity beyond COVID lockdowns.

The December quarter ’21 is shaping up to be a very strong period, making up for the lockdown-induced slowing in the September quarter. We expect activity levels will remain elevated for the whole of calendar year ’22, before it starts its march to trend growth commencing in ’23.

We do not believe Australian equities are too expensive on average when you consider them in relative terms against where long-term interest rates are sitting, and their forward earnings growth outlook.

Drilling into the forward earnings per share (EPS) growth, Xiradis said, “We believe… some of the post-lockdown beneficiaries are offering strong potential EPS growth for FY22 relative to value.”

ASX 200 travel shares have certainly come to the fore as post-lockdown beneficiaries. Both the Qantas and Webjet share prices rocketed following the announcement of effective vaccines in November 2020. And shares again lifted off when Australia’s reopening plans were clarified amid high vaccination rates in August this year.

Yet, as Xiradis points out, there are risks to their continuing recovery. Notably, surrounding the unknowns of the virus:

Any resurgent re-infection issues or return to lockdowns and border closures would be a concern, however with vaccination rates so high we believe this risk of such is low. Furthermore, the breakthrough of a COVID-19 antiviral pill by Pfizer could be a game changer. There remains a slim risk that not all Australian states will deliver on vaccination targets, but we believe this risk is negligible.

Regarding the ASX 200 travels shares named above, Xiradis said, “Post-lockdown, with borders reopening we see positive earning growth outlooks for companies like Qantas [and] Webjet…”

How have these ASX 200 travel shares been performing?

The Qantas share price is up 8% so far in 2021 while fellow ASX 200 travel share Webjet has gained 11%. That compares to a 12% year-to-date gain posted by the ASX 200 itself.

Over the past month, Qantas shares have lost 7% and the Webjet share price is down 10%.

The post Is the reopening already priced into ASX 200 travel shares? appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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