Qantas share price trades at ‘unwarranted’ discount and could soon take off: Morgans

The Qantas Airways Limited (ASX: QAN) share price avoided the market selloff on Wednesday.

The airline operator’s shares finished the day 1.5% higher at $6.27. This compares favourably to the ASX 200 index, which closed the day 0.85% lower.

Following today’s gain, its shares are now up 22% over the last 12 months.

Why did the Qantas share price take off?

Investors were buying the airline’s shares on Wednesday after the company was the subject of a bullish broker note out of Morgans.

According to the note, the broker has initiated coverage on the company with an add rating and $8.50 price target.

Based on the current Qantas share price, this implies potential upside of almost 36% for investors over the next 12 months. That’s despite its shares trading within a few cents of their 52-week high.

‘Unwarranted’ discount

Morgans believes that the Qantas share price is trading at an “unwarranted” discount given the significant improvements in its earnings. It said:

The discount being applied to QAN is unwarranted, in our view. Solid value exists in QAN given we expect further EBITDA growth over FY24/25 and think pent-up demand to travel will underpin a healthy demand environment for some time.

The broker highlights that its shares are trading just over 6x forward earnings, which is a big discount to historical averages. The broker explained:

QAN is trading on an FY23F EV/EBITDA and PE of 2.9x/6.3x, which is a ~24%/30% discount to its historical 5-year pre-COVID average multiples of ~3.8x/9.0x, despite having structurally higher earnings, a much stronger balance sheet, a better domestic market position, a higher returning International business and more diversification (stronger Loyalty/Freight earnings). QAN’s balance sheet strength also positions it extremely well for its upcoming “EBIT-accretive” fleet reinvestment, whilst leaving significant headroom for further capital management.

All in all, Morgans appears to believe that Qantas’ shares still have plenty of room to ascend into the clouds from here.

The post Qantas share price trades at ‘unwarranted’ discount and could soon take off: Morgans appeared first on The Motley Fool Australia.

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More reading

• Qantas share price takes off despite ACCC warning
• Can the Qantas share price fly even higher in December?
• Why did the Qantas share price take off in November?
• Why is the Qantas share price smashing the ASX 200 on Tuesday?
• The Qantas share price is flying again. Why this fundie is concerned

Motley Fool contributor James Mickleboro 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 no position in any of the stocks mentioned. 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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