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Will the Qantas (ASX:QAN) share price soar 20% higher from here?

qantas share price
Image Source: Qantas

The Qantas Airways Limited (ASX: QAN) share price has been a strong performer over the last six months.

During this time, Australia’s flag carrier airline’s shares have stormed 35% higher.

Can the Qantas share price go higher?

Although the Qantas share price has been soaring in recent months, one leading broker believes it can ascend even higher.

This morning Goldman Sachs reiterated its buy rating and $6.38 price target on the company’s shares.

Based on the latest Qantas share price of $5.21, this price target implies potential upside of 22% over the next 12 months.

What did Goldman Sachs say?

Goldman Sachs has been looking into the airline industry following the release of data from the Bureau of Infrastructure, Transport and Regional Economics (BITRE).

According to the note, domestic airfare data for the month of March reveals that ‘best discount’ fares declined by 23% year on year and ‘Restricted Economy’ fares declined by 18% year on year.

While meaningful discounting is never good for airlines, Goldman isn’t overly concerned at this stage, particularly given the improvement in fares financial year to date (FYTD).

It explained: “Volatility of fares has remained a key characteristic over the past 6 months as airlines continue to dynamically adjust fares to fill scheduled capacity (i.e. maximise load factors) in an environment characterised by unpredictable and sudden state border closures.”

“Through the past 6 months, airlines have been relatively proactive in restricting capacity to accommodate lower demand for travel, and reducing discounts on airfares to manage profitability. On a FYTD basis, the prices remain up +1.9% yoy. Notably on a FYTD basis, we highlight increases on the Canberra-Melbourne (up 63% yoy); Melbourne-Perth (up 54% yoy) and Perth-Sydney (up 41% yoy), highlighting the inelasticity of government and resources sector led demand.”

Why is the Qantas share price in the buy zone?

Goldman explained that it believes Qantas is a good COVID-recovery investment option for investors.

It concluded: “We reiterate our Buy rating on QAN.AX with our 12-month TP of A$6.38. While average ticket prices are falling, we note that a greater proportion of this travel is being taken on leisure routes and for QAN we expect greater penetration of the low-cost Jetstar brand.”

“QAN represents a strong recovery investment with Qantas/Jetstar brands forecasting capacity to return to c.80%/c.100% of pre-covid levels during the upcoming April holiday period. In our view, the combination of: (i) recent federal government support package; and (ii) 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, we think it likely that they will achieve this target.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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