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.
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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.
