Why Qantas shares could be a bargain buy – Goldman Sachs

Qantas Airways Limited (ASX: QAN) shares were caught up in the market selloff on Tuesday.

The airline operator’s shares tumbled 2.5% to $6.07.

Are Qantas shares in the buy zone?

The team at Goldman Sachs believes investors should be taking advantage of this pullback to buy Qantas shares.

According to a note this morning, the broker has reiterated its conviction buy rating and $8.20 price target on the company’s shares.

This implies potential upside of 35% for investors over the next 12 months.

And with Goldman expecting a 10 cents per share dividend in FY 2023, the total return on offer with Qantas shares extends to almost 37%.

What did the broker say?

Goldman highlights that while overall capacity is expected to remain below pre-COVID levels in FY 2023, it expects profitability to be materially better thanks to strong pricing momentum, supply demand discipline, and cost saving initiatives.

In light of this and its significantly improved debt position, the broker believes that Qantas shares are trading at a very attractive level right now. It explained:

Against the backdrop of substantially improved earnings capacity, we believe the stock is not even priced for a generic recovery. Specifically, QAN’s market capitalisation sits 4% above pre-COVID level and enterprise value (based on last reported net debt) is 12% below pre-COVID levels based on latest reported net debt of A$2.4b.

[O]ur FY23e EPS forecast is 58% above FY19a levels with group capacity still 21% below pro-COVID levels. Even as the yields moderate (with capacity restoration) our FY24e EPS (100% of FY19 capacity) is 46% above FY19 levels.

All in all, this could make Australia’s flag carrier airline one for investors to consider if they are looking for options in the travel sector right now.

The post Why Qantas shares could be a bargain buy – Goldman Sachs appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• 3 ASX 200 shares that have ‘significant share price upside’: fund manager
• Is Qantas stock a cheap ASX 200 buy right now?
• Why this one top fund manager is optimistic about 2023, and one little-known IPO that has hit it out of the park
• Brokers name 3 ASX shares to buy today

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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