Why this broker thinks it's time to buy Qantas (ASX:QAN) shares

As state borders re-open to domestic tourism, this broker thinks it could be time to start buying Qantas Airways Limited (ASX:QAN) shares.

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With the borders of most states and territories reopening and Victoria's coronavirus outbreak now a thing of the past, the future is finally starting to look much rosier for all Australians. There is even reason to hope that there could be a solid rebound in domestic tourism this summer.

So, is it finally time to start investing in the tourism sector?

Shares in most ASX tourism companies have taken a substantial hit this year. And despite better local news over the last couple of months, most ASX tourism shares are still languishing at or near their 52-week lows.

Travel agent Flight Centre Travel Group Ltd (ASX: FLT) shed close to 70% of its value back in March and, despite a small rise over the last month or so, at $16.87 it is still well short of the 52-week high of $40.77 it reached prior to the COVID-19 crisis. Online travel site Webjet Limited (ASX: WEB) has fared more or less the same.

But at least one major broker is feeling bullish about Australia's largest airline. Earlier in December, Goldman Sachs reiterated its buy rating for Qantas Airways Limited (ASX: QAN), and put a 12 month target of $7.05 on the company's shares. That represents a significant 37% upside to the current Qantas share price of just $5.16.

What does Goldman like about Qantas shares?

Goldman Sachs released its note in response to a Qantas market update on 3 December 2020. In the update, Qantas stated that domestic demand was rebounding in response to border re-openings, with domestic flight capacity at 68% of pre-COVID levels for the month of December. As an indication of the strength of demand, Qantas revealed it had sold more than 200,000 fares for flights to Queensland from New South Wales and Victoria within 72 hours of the announcement that borders between these states would be re-opening.

Goldman believes this strong rebound could signal higher than anticipated capacity throughout the second half of FY21.

Qantas freight has also been performing well, due to the uptick in e-commerce sales during lockdowns. The airline added additional freight transportation services between the international hubs of Los Angeles, Hong Kong and Sydney, and it also revealed that several passenger aircraft were now being used to carry freight. Qantas is also looking into the logistics of using its aircraft to transport COVID-19 vaccines at low temperatures.

But it wasn't all rosy. International flights continue to remain grounded, most likely until at least July 2021, and Qantas admits that international travel could take years to fully recover. Qantas also forecast that revenues for the full year FY21 would be down by at least $11 billion compared to pre-COVID levels.

However, Goldman Sachs stated that the revenue expectations outlined by Qantas in its market update were broadly in line with its own earlier estimates. The broker still feels confident that the domestic aviation industry can recover strongly now that the eastern states have reopened. It feels that as the broader domestic economy recovers from the effects of the pandemic, Qantas can reaffirm its position as market leader in corporate and premium travel, while Jetstar can reclaim pole position in the low-cost market.

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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