Flight Centre Travel Group Ltd (ASX: FLT) shares could be great value right now.
Thatâs the view of analysts at Morgans, which have just upgraded the travel agent giantâs shares following the release of its quarterly update.
Flight Centre share price tipped to soar
According to the note, the broker has upgraded Flight Centreâs shares to an add rating with a significantly improved price target of $26.25.
Based on the current Flight Centre share price of $21.05, this implies potential upside of 25% for investors over the next 12 months.
In addition, the broker is expecting the company to be in a position to resume paying dividends in FY 2024. It has pencilled in a 50 cents per share dividend that year, followed by an 88 cents per share dividend in FY 2025.
This will mean dividend yields of 2.4% and 4.2%, respectively, for investors in those financial years.
Why is Morgans bullish?
There were a couple of reason why Morgans has upgraded its rating and valuation of the Flight Centre share price.
One was the strong trading update it released which has led to the broker lifting its earnings estimates through to FY 2025. The other is a change in its valuation model to a sum of the parts (SOTP) methodology, which it feels is now a more appropriate way to value its shares. Morgans explained:
Given FLTâs stronger FY23 EBITDA guidance and it bringing forward its FY25 margin target, we have upgraded our EBITDA forecasts by 2.8%/4.3%14.2% in FY23/24/25. Our new FY25 EBITDA forecast of A$295.5m is slightly ahead of the top end of FLTâs guidance range as we think it will prove to be conservative and wouldnât be surprised if it was upgraded following its key trading period.
Given the companyâs operating and financial leverage, the upgrades at the NPAT level are greater. Our forecasts are now well ahead of consensus estimates. To better account for FLTâs different business units and compare it to peers, we now value the company using a SOTP methodology. Our SOTP is A$26.26 per share.
The post Why this broker just upgraded Flight Centre shares to a buy rating appeared first on The Motley Fool Australia.
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More reading
- 4 ASX 200 shares just upgraded by brokers
- How did the Flight Centre share price manage to flog the ASX 200 in April?
- Here are the top 10 ASX 200 shares today
- Why Flight Centre, Jumbo, Pilbara Minerals, and Ramelius shares are charging higher
- Flight Centre share price lifts following record, $1 billion month
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 recommended Flight Centre Travel Group. 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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