Qantas Airways Limited (ASX: QAN) shares are on course to start the week with a small decline.
In afternoon trade, the airline operator's shares are down slightly to $6.49.
Where next for Qantas shares?
While the Qantas share price may be having a subdued session on Monday, the team at Morgans believe that it could soon take off.
According to a recent note out of the broker, its analysts have named the flying kangaroo as its top pick in the travel sector.
Thanks to its much-improved performance, Morgans believes that Qantas shares can fly notably higher from here.
The note reveals that Morgans has an add rating and $8.50 price target on them. Based on where they are trading today, this implies over 30% upside for investors over the next 12 months.
Why is the broker bullish?
Morgans elevated Qantas shares to the top of its travel picks due to its belief that the company's near term earnings have the most momentum. It explained:
QAN is now our preferred pick out of our travel stocks under coverage given it has the most near-term earnings momentum. Looking across travel companies globally, airlines are now in the sweet spot given demand is massively exceeding supply.
In addition, the broker believes the Qantas share price is too cheap to ignore at current levels. Particularly given how its business is significantly stronger than pre-pandemic. It adds:
QAN is trading at a material discount compared to pre-COVID multiples, despite having structurally higher earnings, a much stronger balance sheet, a better domestic market position, a higher returning International business and more diversification (stronger Loyalty/Freight earnings).
And thanks to pent up demand, Morgans believes Qantas is well-placed for growth and further capital management initiatives in the coming years. In respect to the latter, Morgans suspects that a $400 million on-market share buyback could be announced this month. It said:
The strong pent-up demand to travel post-COVID should result in a healthy demand environment for some time, underpinning further EBITDA growth over FY24/25. QAN's balance sheet strength positions it extremely well for its upcoming EBIT-accretive fleet reinvestment and further capital management initiatives (forecasting a A$400m on-market share buyback to be announced at 1H23 result). There is also likely upside to our forecasts and consensus if QAN achieves its FY24 strategic targets.
