Why this leading fundie forecasts a big uplift for Flight Centre shares

Flight Centre Travel Group Ltd (ASX: FLT) shares are enjoying a welcome day of outperformance.

Shares in the S&P/ASX 200 Index (ASX: XJO) travel stock closed yesterday trading for $12. In early afternoon trade on Friday, shares are changing hands for $12.03 apiece, up 0.3%.

For some context, the ASX 200 is down 1.4% at this same time, following heavy selling in US stock markets overnight.

Longer term, Flight Centre shares have lagged the benchmark index, down 29% in a year compared to the 1.3% 12-month gains delivered by the ASX 200.

Though that’s not including the 40 cents per share in fully franked dividends the travel company paid eligible stockholders over the full year. At the current price, this sees Flight Centre stock trading on a fully franked trailing dividend yield of 3.3%.

And looking to the months ahead, Matthew Nicholas, deputy portfolio manager of 1851 Capital’s emerging companies fund, expects a much stronger performance from the stock (courtesy of The Australian Financial Review).

Flight Centre shares tipped for material turnaround

Asked which stock his fund owns that he believes has the most near-term upside, Nicholas pointed to Flight Centre shares.

“Flight Centre is a standout to us,” he said. “It’s trading near its COVID-19 lows from 2020, compared to the Small Ords, which have more than doubled over the same timeframe.”

Nicholas noted, “The stock trades on 12 times PE, is virtually debt-free and yet is the seventh most shorted stock on the ASX.”

Indeed, Flight Centre shares kicked off the week with a short interest of 11%. But according to Nicholas, traders betting against the ASX 200 travel stock could be about to get burned.

He said:

The business has faced a litany of headwinds in the past five years from pandemics to soft consumer confidence. Whilst the leisure business has borne the brunt of these challenges, in the background Flight Centre has grown what’s now a very robust corporate travel business and the key earnings driver of the group.

We see a combination of new contract wins in the corporate business and easing macro headwinds for the leisure division driving earnings across the group.

Nicholas concluded, “Importantly, market expectations are very low, which is always a good ingredient for outperformance.”

What’s the latest from the ASX 200 travel stock?

The last price-sensitive news for Flight Centre shares was released on 12 November.

The trading update came during the company’s annual general meeting (AGM).

Among the core financial metrics grabbing ASX investor interest, management forecasts FY 2026 underlying profit before tax will be in the range of $305 million to $340 million. That’s 5.5% to 17.6% above FY 2024 profit levels.

“FY26 is off to a positive start, with first-quarter results and preliminary October trading data confirming momentum across both corporate and leisure segments,” Flight Centre’s managing director Graham Turner said at the AGM.

The post Why this leading fundie forecasts a big uplift for Flight Centre shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben 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.