The Qantas Airways Limited (ASX: QAN) share price was a positive performer yesterday after the Government announced a $1.2 billion stimulus package to support the domestic tourism market.
The airline operator's shares rose by a solid 2.5% to end the day at $5.30.
This latest gain means the Qantas share price is now up 35% over the last six months.
Image Source: Qantas
Can the Qantas share price go higher?
The good news for investors is that one leading broker still believes the Qantas share price can go a lot higher from here.
According to a note out of Goldman Sachs this morning, its analysts have reiterated their buy rating and $6.38 price target on its shares.
This price target implies potential upside of approximately 20% over the next 12 months.
What did Goldman say?
Goldman was pleased with the news and believes the stimulus on tourism and leisure routes will underpin its expectations of a tourism/leisure led recovery in the Australian domestic market.
In addition to this, the broker expects the discounted ticket sale to support Qantas' cash inflows.
"QAN actively re-paid c.A$2bn of revenues received in advance (RRIA) during 1H21, which we expect to re-build during the recovery phase. QAN's 1H21 revenue received in advance stood at A$3.7bn and was A$2bn lower than pre-covid levels (1H21). The proposed ticket sale will aid QAN's cash inflows and we expect rising RRIA to benefit net debt levels and ultimately equity valuations."
It also expects the government's package to provide direct support to retain employees, which should mean the airline won't have to incur additional and upfront cash redundancy costs.
Another positive is that the offer of discounted fares tends to support full-fare purchases. Goldman explained:
"We have seen that historically flash sales have generated significant peripheral demand for full-fare ticket sales. During the NZ recovery last year, AIR.NZ announced a 3-day flash sale with the offer of 180k discounted seats and subsequently sold 250k seats within a 72 hours period. We expect a similar level of demand to be generated with this highly publicised offer."
Exposure to the COVID-19 recovery
Overall, the broker believes Qantas is a great way for investors to gain exposure to the COVID-19 recovery. Goldman concluded:
"We reiterate our Buy rating on QAN.AX with our 12-month TP of A$6.38 (based on 50% SOTP (FY22E)/50% NPV) presenting 20% potential upside. QAN represents a strong recovery investment, if the Australian COVID-19 vaccination program has the effect of reducing community transmission of the virus and limits the need for domestic border closures.
The key downside risks to our view are from: (i) increased market capacity resulting from increasing competition; (ii) moderation in underlying passenger demand; (iii) higher fuel prices; (iv) weaker A$; and (v) worse outcomes than anticipated from the cost reduction program."
