The Qantas Airways Limited (ASX: QAN) share price has been a positive performer on Thursday.
In afternoon trade the airline operator’s shares are up 1.5% to $3.72.
Is the Qantas share price in the buy zone?
While I do see value in Qantas shares at the current level, the recent spike in coronavirus cases in Victoria has increased uncertainty materially.
In light of this, I would class its shares as a hold at this point and suggest investors wait for trading conditions to improve before investing.
One broker that is also sitting on the fence is Goldman Sachs. This morning the broker retained its neutral rating and lifted its price target to $3.82.
What did Goldman Sachs say about Qantas?
Goldman Sachs is confident that Qantas will remain the dominant airline on the other side of the pandemic and expects its profitability to eventually return to previous levels.
Its analysts commented: “We can have a reasonable degree of confidence the airline and its profitability will return to pre-Covid levels at some point in the future when the market has settled; however we have very limited certainty that this can and will be achieved over a medium-term (2-3 year) time horizon.”
It also notes that the near term is full of uncertainty. Goldman commented: “The near-term market size is highly uncertain, with long-haul international markets likely to remain effectively closed and the trans-Tasman and domestic aviation markets constrained by quarantine restrictions.”
The broker acknowledges that a recovery in domestic activity could underpin a substantial earnings recovery. It estimates that Qantas’ domestic services (both Qantas and Jetstar) represented ~55% of calendar year 2019 earnings before interest and tax.
However, it has concerns over the recent spike in inspections. Noting that a coronavirus spike “on the east coast golden triangle routes mean that a fluid resumption of air travel is unlikely in the near term.”
In light of this uncertainty, it holds firm with its neutral rating.
One travel and tourism share that it does like is Sydney Airport Holdings Pty Ltd (ASX: SYD). This morning it retained its buy rating and put a $6.73 price target on the airport operator’s shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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