Buying Qantas (ASX:QAN) shares is more than a COVID-19 recovery play: expert

This fundie reckons the airline has further to climb…

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Key points

  • Qantas shares were one of the hardest-hit during COVID
  • But the company also gave investors a strong recovery period
  • However, this fundie reckons the airline can fly even higher...

If one rack’s the mind for a typical ASX COVID recovery share, the Qantas Airways Limited (ASX: QAN) share price would have to be one of the strong contenders. Qantas, largely due to its nature as an airline, was of course hard hit by the emergence of the pandemic two years ago. Between 21 February and 20 March 2020, the Qantas share price fell by a nasty 63% or so.

But it didn’t take long for Qantas shares to change from COVID-19 victim to ‘recovery play’. The Qantas share price rose by an enriching 142% or so between March 2020 and October 2021.

But more recently, we have started to see Qantas shares stagnate. The Flying Kangaroo remains down 8.5% over the past 12 months on current pricing. It’s also down by 5.8% this year to date.

So are Qantas shares just a spent recovery play as they stand today?

Why Qantas shares are a buy: analyst

The answer is a definite ‘no’, according to Sean Drennan, High Conviction Fund analyst for fund manager Firetrail. Here’s some of what he had to say on why he is bullish on Qantas shares right now:

COVID has not only dominated the headlines, but it has also dominated the stock market’s perception of Qantas… But there are several factors that are currently being overlooked that make Qantas extremely compelling for investors willing to look through the headlines.

While Qantas is accruing losses, cash is still coming in the door, as people book flights in advance for future travel. Management also just raised $800 million through the sale of excess land. All up, this gives Qantas about $4 billion in available liquidity to withstand the turbulence… The key point here is that Qantas’ balance sheet remains resilient…

As the dominant domestic airline, we are confident that Qantas will not only survive the pandemic, but emerge in a much stronger competitive position… There is a huge amount of pent-up demand.

The crisis hasn’t been wasted…

Drennan points to a resurgence in worldwide travel bookings amid a relaxation of travel restrictions around the globe Looking at the medium- to long-term outlook, Drennan points to Qantas’ competitive position as a key advantage for the company. That’s especially true for the domestic market.

He also points to the $1 billion in costs that management has stripped out of Qantas over the pandemic as a reason to be bullish.

He concludes by predicting that Qantas will return to paying dividends in the not-too-distant future. That would boost shareholders’ returns even further.

No doubt Qantas shareholders will be hoping that Drennan and Firetrail are right in their analysis of Qantas shares’ potential. But we shall have to wait and see how the ‘national carrier’ fares over the next few years to be sure.

At Friday’s closing Qantas share price of $4.85, this ASX 200 airline has a market capitalisation of $9.3 billion.

Motley Fool contributor Sebastian Bowen has no position 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 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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