Flight Centre Travel Group Ltd (ASX: FLT) has been one of the best stocks to hold over the past five years. The company’s shares were hammered during the GFC from a high of over $30 in 2007 to a low of around $3.70 in 2008. Since then, Flight Centre’s share price has surged over 400% to the current price of $45, as the company has emerged as the dominant travel booking group in Australia and expanded globally into the US and Europe.
2014 Profit Downgrade
In early June, Flight Centre joined the chorus of consumer-exposed companies to issue a profit downgrade leading into the July and August reporting season. Flight Centre updated the market that growth for the financial year would be lower than expected, and lower than in previous years.
Importantly however, brokers and market commentators appear to be of the opinion that the profit downgrade really isn’t that much of a problem. Unlike recent downgrades from retail groups like The Retail Shop Ltd (ASX: TRS), Flight Centre will still grow profit by 7% to 8% this year even though consumer confidence and domestic travel have been weak.
Can Flight Centre Hit $60?
I firmly believe that we will see Flight Centre hit $60 within the next three or four years. The company has traditionally grown earnings and dividend per share by between 15% and 20% annually since listing in 1995 and is forecast to continue growing, albeit at a slower rate, well into the future. A rise to $60 would represent a 30% increase from the current share price.
In order to justify a $60 share price, Flight Centre will have to continue delivering solid growth. Conveniently, the most appealing aspect of Flight Centre’s business is its ability to perform well during most economic conditions. The company was smashed during the GFC when global travel went backwards, but analysts are forecasting Flight Centre to boost earnings per share by nearly 50% from 237 cents in 2013 to 320 cents in 2016. This could well be the catalyst that pushes the share price to $60 if the company can perform as expected.
The key risks include a loss of market-share to lower-cost online providers, a broad slowdown in the domestic and global travel market, and taking on too much debt in order to gain an international presence.