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Flight Centre share price sinks lower on broker downgrade

The market may be pushing higher on Tuesday, but the same cannot be said for the Flight Centre Travel Group Ltd (ASX: FLT) share price.

In afternoon trade the leading travel agent’s share price is down 3% to $42.14.

Why is the Flight Centre share price sinking lower today?

With no news out of the company, today’s decline appears to be related to a broker note out of Morgans this morning.

According to the note, the broker has downgraded Flight Centre’s shares from an add rating to a hold rating. Its analysts have also trimmed the price target on them by almost 6.5% to $47.75.

This price target still implies potential upside of over 13% for its shares over the next 12 months excluding dividends.

If you included the $1.69 per share dividend that the broker expects Flight Centre to pay this year, this potential return increases to over 17%.

Why did Morgans downgrade Flight Centre’s shares?

The broker made the move after recent industry data pointed to a decline in travel demand from consumers.

Morgans has warned investors that Flight Centre could be impacted by weaker discretionary spending. Which would not be good news given how cost pressures are building.

Should you invest?

Based on Morgans forecast for earnings per share of $2.82 in FY 2019, Flight Centre’s shares are currently changing hands at under 15x estimated forward earnings.

Given this low multiple and the potential return on offer based on the broker’s price target and its dividend, I think Flight Centre is well worth considering right now.

However, I still have a preference for integrated travel company Helloworld Travel Ltd (ASX: HLO) and online travel agent Webjet Limited (ASX: WEB) at current prices. Webjet remains the pick of the bunch for me due to its strong long term growth potential and fair valuation.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of Helloworld Limited. The Motley Fool Australia has recommended Webjet Ltd. 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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