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Is the Webjet (ASX:WEB) share price in the bargain bin?

A teacher in front of a classroom chalkboard filled with questionmarks, indicating share market uncertainty
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The Webjet Limited (ASX: WEB) share price was out of form last week and sank notably lower.

During the shortened week, the online travel agent’s shares fell a disappointing 7.9%.

Why did the Webjet share price sink lower?

Webjet’s shares came under pressure last week following the announcement of a convertible note offering to raise $250 million.

Management advised that it was raising funds to repay $43 million of Webjet’s existing term debt, fund potential acquisitions, and for capital management or general corporate purposes.

While this leaves the company in a very strong financial position, investors appear disappointed that it is diluting their holdings yet again.

This latest decline means the Webjet share price is now down 16% from its March high.

Is this a buying opportunity?

According to a note out of Goldman Sachs, its analysts believe the recent weakness in the Webjet share price is a buying opportunity.

This morning the broker retained its buy rating and reduced its price target on the company’s shares to $7.00.

This price target implies potential upside of over 32% for its shares over the next 12 months.

What did Goldman say?

While Goldman acknowledges that the capital raising will dilute shareholders, it notes that it removes some uncertainty.

It said: “We view this announcement as a move towards removing capital structure uncertainty. While the new convertible notes are likely to be dilutive to equity shareholders in the future, they are currently out of the money with par value 20.3% above the current share price.”

“In the interim, the announcement further lengthens debt maturity, removes the P&L impact from mark to market of the convertible option revaluation and lowers the interest cost on debt. While not a key factor in our base recovery scenario, we believe that these factors ease uncertainty in the bear case recovery scenario.”

Goldman concluded: “We revise our NPAT forecast by -9.2% and -6.6% respectively over FY23 and FY24. We also adjust our 12 month Target Price for the dilutive impact of the EUR convertible note. Overall, our revised Target Price on WEB is at A$7.00. We maintain our Buy rating.”

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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 Webjet Ltd. 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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