Macquarie tips $800m buyback for Qantas shares

Qantas Airways Limited (ASX: QAN) shares could get another boost if analysts at Macquarie are correct.

Airlines had a really tough time during the COVID-19 pandemic. There was a lot less demand for air tickets, so the airlines had to be supported with a lot of money.

But now things are looking a lot better for the sector, including Qantas.

Domestic travel is now back to pre-COVID levels, which is leading to airline profits jumping back towards 2019 levels. International travel is still recovering.

What’s Qantas going to do with all of the extra earnings that it has suddenly has? Macquarie may have the answer.

Share buyback?

According to reporting by The Australian, Macquarie believes the quicker-than-expected return to profit could mean that Qantas buys back up to $800 million of its shares through a share buyback. Dividends would then return, and it would begin paying tax again in the second half of FY24.

Macquarie thinks the ASX airline share can fund both its fleet renewal while also carrying out capital management for shareholders, meaning the buyback.

The newspaper reported that the broker said:

The operating conditions for Qantas are accommodating higher RASK (revenue per available seat kilometre) than we had anticipated considering tight capacity, in particular within international.

Whilst this operating environment is likely as good as it gets, with more capacity expected to see a RASK impact, it does mean that the near-term snap-back in earnings is much sharper than we had anticipated.

When will profit return to normal?

Qantas has already said that its domestic demand has returned to normal. However, the broker has projected that profit will normalise in FY24, though there will be economic issues for the airline to deal with.

Macquarie wrote:

At this point, we forecast the overall business to generate a 12.5% earnings before interest and taxes (EBIT) margin, which… supports around a $600m earnings benefit.

The broker noted that it won’t be until the second half of FY24 that Qantas starts paying tax again because of carried-forward tax losses.

Broker rating on the Qantas share price

Macquarie rates Qantas as outperform, with a price target of $7.05. That implies a possible rise of close to 17% on the current price of $6.04.

Even though the Qantas share price is up 15% over the past month, I believe there is more recovery in store for the airline, despite the higher oil price.

Demand remains strong, after a few years of COVID-19 and lockdowns. It’s not a very defensive business, but I think it’s still a buy thanks to the elevated demand.

The post Macquarie tips $800m buyback for Qantas shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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