Qantas Airways Limited (ASX: QAN) shares have started the year strongly and are smashing the ASX 200 index.
Since the start of the year, the airline operator's shares have risen over 11%.
As you can see below, this means the Qantas share price is now up 32% over the last 12 months.
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Are Qantas shares a top option on the ASX 200?
The good news is that one leading broker believes Qantas is still an ASX 200 share to buy despite its strong gains.
In fact, the team at Goldman Sachs believes that the airline's shares can still ascend materially between now and the end of the year.
According to a note from this week, the broker has reiterated its buy rating and $8.20 price target on its shares. This implies potential upside of over 25% for investors over the next 12 months.
Capacity increasing
Goldman highlights that slot bookings indicate that Qantas' domestic capacity will be 102% of pre-COVID levels in the second half. This is ahead of the broker's estimates and the company's guidance. It said:
Over the last fortnight, 2H23 scheduled capacity was largely unchanged with the market at 98% of pre-COVID levels and QAN at 102% (GSe 100%, QAN guidance: 101%).
It is a similar story for international capacity, Goldman notes:
1H23 international market capacity was 58% of pre-COVID levels with QAN (incl. JQ) at 62% (GSe and guidance at 61% of normal). 2H23 scheduled int'l market/QAN settings were ~76%/80% of normal. Note we forecast 77% of normal for QAN Group International in the 2H.
Another positive is the price of airfares. Although they have fallen from recent highs, they are still well ahead of pre-COVID levels. Goldman adds:
The cheapest available return fare for the golden triangle routes (Brisbane-Sydney, Melbourne-Sydney, Brisbane-Melbourne) for Jan-23 averaged A$213, declining by 38% mom, but up 40% vs. the pre-covid level.
All in all, the broker believes that this positions Qantas to deliver a bumper profit result in FY 2023 and FY 2024. In fact, the former is expected to be 58% ahead of pre-COVID levels.
However, despite this, Qantas' enterprise value is still lower than 2019 levels. This is a key reason why the broker sees a lot of value in this ASX 200 share today. Goldman concludes:
With the market capitalization 10% above pre-COVID levels and EV (based on last reported net debt) 8% below pre-COVID, we believe the stock is not appropriately pricing QAN's improved earnings capacity. Specifically, our FY23e EPS forecast is 58% above FY19a levels with group capacity still 21% below pro-COVID levels. Even as the yields moderate (with capacity restoration) our FY24e EPS (100% of FY19 capacity) is 46% above FY19 levels.
