The Qantas Airways Limited (ASX: QAN) share price was flying high in 2022.
As you can see below, during the 12 months, the flying kangaroo's shares soared 20%.
This compares very favourably to the ASX 200 index, which recorded a 5.5% decline.
Why did the Qantas share price take off in 2022?
Investors were bidding the Qantas share price higher in 2022 thanks to its strong recovery from the pandemic.
In October, Qantas provided the market with its first half profit guidance and net debt guidance.
It advised that it expected to report an underlying profit before tax of between $1.2 billion and $1.3 billion for the six months ending 31 December. This was expected to leave it with net debt between $3.2 billion and $3.4 billion, which was well below its target of $3.9 billion.
While this guidance was enough to get the market excited, it wouldn't be long until it became a frenzy.
Just a little over a month later, Qantas revealed that trading had been even stronger than expected and upgraded its guidance.
Qantas advised that it now expects to post an underlying profit before tax of between $1.35 billion and $1.45 billion for the half. This represents a $150 million increase to the guidance range given in October. That's despite the airline's fuel costs being on course to reach a record high of $5 billion for the full financial year.
Management advised that its strong performance is being driven by consumers continuing to put a high priority on travel ahead of other spending categories. In addition, there are signs that limits on international capacity are driving more domestic leisure demand, which is benefiting its domestic business.
As a result of this stronger than expected performance and some delayed capital expenditure, Qantas now expects its net debt to be $2.3 billion to $2.5 billion at the end of December. This is approximately $900 million better than its previous guidance.
Will 2023 be just as good?
The good news for investors is that a couple of leading brokers believe that 2023 could be even better for the Qantas share price.
For example, according to a note of Goldman Sachs, its analysts have a conviction buy rating and $8.20 price target on the company's shares. This implies potential upside of 36% for investors over the next 12 months. It commented:
Against the backdrop of substantially improved earnings capacity, we believe the stock is not even priced for a generic recovery. Specifically, QAN's market capitalisation sits 4% above pre-COVID level and enterprise value (based on last reported net debt) is 12% below pre-COVID levels based on latest reported net debt of A$2.4b.
Another bullish broker is Morgans, which believes the Qantas share price can ascend even higher. It has an add rating and $8.50 price target on its shares, which suggests potential upside of over 40%.
Morgans agrees that the company's shares are significantly undervalued at the current level. It said:
The discount being applied to QAN is unwarranted, in our view. Solid value exists in QAN given we expect further EBITDA growth over FY24/25 and think pent-up demand to travel will underpin a healthy demand environment for some time.
