What’s Jefferies saying about the Qantas (ASX:QAN) share price?

The team at Jeffries offer their view on the flying kangaroo.

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view from below of jet plane flying above city buildings representing corporate travel share price

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Shares in Qantas Airways Limited (ASX: QAN) have come off a closing high of $5.85 marked on November 8 and now trade 14% lower at $5.025.

In today’s session, shares in the flying kangaroo are up 2.5% on about half of its 4-week average volume.

Amid the uncertainties surrounding the new Omicron COVID-19 strain – where several international flight routes have already been cancelled – investors have run from Qantas at a pace these past few weeks.

Yet, amongst the turbulence, the team at investment bank Jefferies reckon that this could instead be a time for investors to be constructive on Qantas shares.

Plenty of opportunities

The recent shakeup on the Qantas share price as the new Omicron COVID-19 strain emerges from the depths, could be full of buying opportunities.

That’s what the team at Jefferies reckon anyway, as the firm encourages investors to consider the recent pullback in a more positive light, rather than complying with the market’s knee-jerk reaction to Omicron.

Despite the constructive language, the broker also cautions investors to factor in the risk that an international travel recovery will be more drawn out if governments step in again with lockdowns.

It notes that Qantas’ international volumes could be 79% behind pre-COVID levels in 2H FY22 and 19% in FY23 according to internal estimates, ceteris paribus.

Jefferies says that “while the recovery to travel confidence is expected to be impacted by the Omicron variant, this impact is a function of the lack of information on the effectiveness of the current vaccines”.

The firm values Qantas at $6.55 per share and reiterated its buy rating in a note to clients yesterday, which suggests a 31% upside potential at the time of writing.

However, bullish sentiment like this isn’t shared equally amongst the list of analysts covering Qantas. Credit Suisse reckons Qantas is a sell whereas another broker has it as a hold in updates last month.

Meanwhile, Morgan Stanley is heavily bullish on Qantas and values the airline company at $7 per share, implying a 40% margin of safety.

ASX travel shares started the week with a mixed reaction across the board yesterday as traders evaluate how to tackle the Omicron strain. Competitor Regional Express Holdings Ltd (ASX: REX) finished down on Monday whereas travel giant Flight Centre Travel Group Ltd (ASX: FLT) also finished the day down from Friday’s close.

Qantas share price snapshot

In the past 12 months, the Qantas share price has slipped almost 7% in the red due to pressures from the pandemic. This year to date, it has rekindled some hope and is now 3% in the green since January 1.

Despite this, investors are driving down Qantas shares this past month. They are down 6% in that time after sinking a further 5% in the last week.

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The author has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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