The Qantas Airways Limited (ASX: QAN) share price has soared around 40% in the last six months. Could the ASX airline share be the best place to put our money before the company reports this week?
Qantas shares have significantly outperformed the S&P/ASX 200 Index (ASX: XJO) in the last half-year — it's only up by 3% in that time.
The travel business has seen a strong post-pandemic rebound in demand and profitability.
Before considering whether it's a buy, I think it's worthwhile thinking about what the business is actually expecting to report.
Latest from the airline
In November 2022, the airline said that in the first half of FY23, it was expecting underlying net profit after tax (NPAT) to come in between $1.35 billion to $1.45 billion.
At the time, Qantas explained that continued strength in travel demand resulted in Qantas upgrading its profit expectations. The range I mentioned above was a $150 million increase compared to the profit range given in early October 2022.
Qantas noted that consumers were continuing to put a "high priority on travel ahead of other spending categories".
I think it's important to recognise the market is now expecting a strong result from Qantas. If it reports an underlying profit before tax of $1.35 billion – the bottom of the range – I don't think investors will love that.
However, fund manager Chris Stott once pointed out that businesses that upgrade their profit guidance can often upgrade a second or third time.
Remember, the Qantas share price, or any share price, is what the market currently thinks the business is worth based on the current guidance/outlook. If it turns out the ASX share is making more profit than expected, then investors will quickly re-evaluate how much the business is worth today.
Is the Qantas share price a buy?
I think Qantas will achieve the high end of its guidance, or perhaps even more.
The airline is rapidly improving its financial position after the terribly difficult COVID-19 period.
Its balance sheet is now looking much stronger. Qantas noted that its net debt is expected to fall to an estimate of between $2.3 billion to $2.5 billion by 31 December 2022. This was around $900 million better than expected in the update before that one.
Excitingly, Qantas noted that the "low levels of net debt put the board in a position to consider future shareholder returns in February 2023". Further capital put into a share buyback should also be helpful for the Qantas share price.
With the oil price drifting lower over 2022, and international travel returning, I think the outlook in FY24 and beyond looks promising for the Qantas share price.
In my opinion, I think that the Qantas share price is a buy on a three-year view. The Qantas loyalty division continues to grow and generate earnings, while capacity is returning.
