On Friday the Qantas Airways Limited (ASX: QAN) share price closed the week at $4.11.
This means the airline operator’s shares are trading over 42% lower than where they started the year.
Is this a buying opportunity?
One leading broker that thinks this could be a buying opportunity for investors is Goldman Sachs.
This morning the broker upgraded Qantas’ shares from neutral to a buy rating and lifted the price target on them by a massive 49% to $5.28.
Based on the current Qantas share price, this price target implies potential upside of over 28% for its shares over the next 12 months.
Why is Goldman Sachs bullish on Qantas?
Goldman Sachs notes that Qantas is the dominant carrier in Australia and fully expects it to come out of the crisis in the same position.
It also believes that management has positioned the company to return to its pre-COVID profitability levels in the near future.
Goldman commented: “Following the drive to increase productivity and reduce costs we can have a high degree of confidence that the airline and its profitability will return to pre-Covid levels over the medium term once the market has settled.”
In addition to this, the broker advised that it has been sitting largely on the sidelines until it became clear when the domestic recovery would take place. Especially given how “c.80% of the carrier’s profitability [is] led by its domestic and Loyalty businesses.”
Pleasingly, its analysts appear confident the domestic market will recover both quicker and stronger than expected.
It explained: “We had been reluctant to take a more constructive view while we lacked certainty around the likely timing of the domestic market reopening. With greater confidence in an earlier and stronger recovery in both domestic and trans-Tasman activity than we previously forecast, we upgrade our rating to Buy.”
What is expected in FY 2021 and FY 2022?
According to the note, Goldman Sachs expects Qantas to post a sizeable loss in FY 2021. It is forecasting a loss before tax of $726.4 million, which equates to a 27 cents per share loss.
Pleasingly, the broker is expecting a material improvement in FY 2022 and has forecast profit before tax of $1,262.8 million and earnings per share of 47 cents.
Based on the latter, this means Qantas’ shares are changing hands for a little under 9x estimated FY 2022 earnings.
Should you invest?
Given the improving outlook for the domestic travel market, I think Goldman Sachs has made a good move upgrading Qantas’ shares to a buy rating today.
While the next 18 months are likely to be turbulent, I suspect patient investors could be rewarded handsomely.