Is the Qantas (ASX:QAN) share price about to soar 40% higher?

One expert thinks that the Qantas share price could be about to fly sky high.

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Key points

  • The Qantas share price is rated as a buy by the broker Morgan Stanley
  • The price target is $7, suggesting an almost 40% upside
  • FY23 is expected to be the year that the airline returns to profitability

The Qantas Airways Limited (ASX: QAN) share price could be about to soar higher, according to one investment expert.

Morgan Stanley thinks that the Qantas share price is undervalued. The broker has a price target close to 40% higher than where it is now.

What has happened to the Qantas share price in 2022?

Qantas shares have continued to behave with a lot of volatility. The COVID-19 impacts are lessening, but now the airline has to contend with much higher oil prices amid the Russian invasion of Ukraine.

As a transportation company, fuel is one of the most significant costs for the business.

How much will this affect demand for flights? Only time will tell. Qantas will also have to decide how much of the price increases to pass onto passengers.

Qantas shareholders continue to wait for the company to stop making losses. The last report included a painful loss.

FY22 half-year earnings wrap

Last month, Qantas reported another result of losses.

In the six months to 31 December 2021, Qantas reported that it made an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $245 million. The underlying loss before tax was $1.28 billion, while the statutory loss before tax was $622 million.

Qantas blamed the Omicron variant of COVID-19 for the unfavourable impact in its results to the tune of approximately $650 million. The Qantas share price has been volatile since the onset of COVID-19.

However, the airline company has been working hard on reducing costs. Qantas says the recovery program was on track to deliver more than $900 million of annualised cost benefits by the end of FY22. This is ahead of schedule.

While COVID-19 has hurt flying, Qantas has seen a record performance by its freight division. This has offset some of the cash losses. There has been a lack of cargo capacity on passenger aircraft. But, management says there has been a permanent shift in e-commerce patterns. It expects freight operations to remain higher than pre-COVID levels.

According to the airline, the Qantas loyalty division performed strongly, with a “strong” cash contribution and underlying earnings before interest and tax (EBIT) of $127 million.

Outlook

The Qantas share price can be influenced by commentary about its outlook.

In terms of a recovery from COVID-19, the business says while travel demand is strengthening and there have been positive developments on international borders, Omicron was likely to negatively impact group EBIT by an estimated $650 million in the second half of FY22.

The group domestic capacity is expected to be 68% of pre-COVID levels in the third quarter of FY22, increasing to between 90% to 100% in the fourth quarter.

The group international capacity is expected to be 22% of pre-COVID levels in the third quarter, increasing to 44% in the fourth quarter.

Qantas share price target

The airline is rated as a buy by the broker Morgan Stanley, with a price target of $7. It’s expecting a return to profit in FY23 as demand returns to flying.

Motley Fool contributor Tristan Harrison 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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