Is Qantas stock a cheap ASX 200 buy right now?

Is the airline an opportunity that's about to soar higher?

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A woman sits crossed legged on seats at an airport holding her ticket and smiling.

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Key points

  • Qantas is benefitting from strong demand for travel
  • The oil price has also been drifting lower in recent months
  • UBS believes that Qantas shares are attractive

The Qantas Airways Limited (ASX: QAN) share price is under consideration by investors – is the S&P/ASX 200 Index (ASX: XJO) share a buy?

It has been a strong performer over the last four months, rising by around 30%.

The business can go up in price and be cheap, so just because it has risen doesn't mean investors should ignore it.

Indeed, one leading broker recently called it attractive.

UBS calls Qantas share price attractive

The broker UBS is always on the lookout for good value businesses that could deliver strong performance.

According to reporting by The Australian, UBS analyst Richard Schellbach suggested that ASX transport shares look cheap on both a "share price and valuation" basis compared to pre-COVID levels, with a number of them trading at a lower share price and lower valuation compared to November 2019.

Schellbach said:

We are particularly drawn to the attractive relative value and price which both Qantas and SEEK Ltd (ASX: SEK) offer.

UBS has a buy rating on the Qantas share price with a price target of $7.60. That implies a possible rise of around 20%. The broker thinks the ASX 200 airline share is valued at 7x FY23's estimated earnings and 6x FY24's estimated earnings.

Latest update

A few weeks ago, the company revealed it was increasing its profit expectations for the first half of FY23, with underlying profit before tax guidance of between $1.35 billion to $1.45 billion. This is an increase of $150 million to the profit range given in early October 2022.

Net debt is expected to fall to between $2.3 billion and $2.5 billion by 31 December 2022.

The business said at the time that fuel costs remain "significantly elevated" compared to FY19 and are expected to reach $5 billion in FY23, which would be a record despite international capacity being around 30% below pre-COVID levels.

However, the oil price has been drifting lower in recent months, which can be a boost for the Qantas share price if it improves the ASX 200 share's profit margins.

The airline explained why there appears to be so much demand at the moment:

Consumers continue to put a high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism.

Snapshot

Over the last month, the Qantas share price has gone up 6%.

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 Scott Phillips.

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