Shares in Aussie airline Qantas Airways Limited (ASX: QAN) have been at the back end of the pandemic-induced frenzy in financial markets this year.
The 'reopening trade' has been tried and tested on several occasions, however new COVID-19 variants and volatile case numbers have put a dent in its full lift-off each time.
With most commentary pointing to a gradual return to full mobility in global borders by 2022, we seek to answer if Qantas is worth the allocation of investors' hard-earned capital right now.
Following the company's trading update yesterday, it has been attracting upgrades en masse from leading brokers. So is it a buy? Let's take a look.
What's the verdict on Qantas shares?
The team at Jefferies were happy with the takeouts from Qantas' trading update. They noted movement on the company's debt position, even whilst trimming its earnings expectations at the same time.
The firm is a long-term bullish supporter of Qantas. It values the company at $5.95 a share after paring its target by about 9% today.
Qantas came in with a deeper underlying EBITDA forecast for 1H. It expects a loss of $250 million to $300 million versus Jefferies' estimate of $101.5 million.
As such, the firm updated its modelling to reflect a pre-tax loss of $1.05 billion. This is a substantial increase on the previous $623 million loss forecasted previously.
However, Jefferies was impressed by Qantas' efforts at reigning in its debt to $5.65 billion towards the end of December.
"While the 1H EBITDA is below expectations – driven by cost increases from the restart of international flying and longer lockdowns – recovery of travel demand is expected to remain uneven, offering opportunities," Jefferies says.
Analysts at Macquarie also upgraded their price target and rated Qantas a buy with a valuation of $6.10 per share.
The firm notes that domestic and international border policies are loosening, which is setting the company up for a "snap-back in profitability in 2H FY22".
It actually sees earnings in FY23 surpassing pre-Covid levels, considering the raft of structural changes and asset divestments in recent times.
JP Morgan also rates Qantas a buy with a $6.50 price target for June 2022. The firm notes that Qantas appears to be well-positioned to weather the airline industry's recovery.
It takes this view because Qantas has taken a material $1 billion in costs per annum out of its business. This is likely to become an ongoing saving from FY23, JP Morgan says. Further, the broker favours Qantas' high proportion of earnings from domestic and loyalty at approximately 70-75% of earnings.
It also likes Qantas' balance sheet and its more favourable competitive position both domestically and internationally.
Fellow broker Citi also chimed in and valued Qantas at $5.86 per share in a note to clients today. Citi acknowledged concerns about the Omicron variant but still believes the risk-reward equation is skewed towards investors' favour.
The broker reckons the market is yet to price in the international division reopening, which could bode well for the Qantas share price.
Meanwhile, Credit Suisse raised its price target on Qantas by 12% to $4.60 per share. Ord Minnett retained its buy rating on the stock, noting it remains comfortable with the prognosis for the aviation industry.
Of the list of analysts provided by Bloomberg Intelligence, 11 rate Qantas a buy and just 1 says hold. Out of this spread, the consensus price target is $6.07 on Qantas shares. This is a 27% return objective from the current market price of $4.77.
So consulting this list, the sentiment appears to be bullish on Qantas shares, particularly after its most recent trading update. Time will tell if the thesis plays out in full.
Qantas share price summary
It's been a year to forget for Qantas shareholders, with a share price loss of 6% in the past 12 months.
In the past month, Qantas shares have plunged by almost 15% into the red.
