The Qantas Airways Limited (ASX: QAN) share price has been caught up in the market selloff on Tuesday.
At the time of writing, the airline operator's shares are down 3% to $6.30.
This means that its shares are now down over 7% over the last three sessions.
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Should you buy Qantas shares?
One leading broker that is likely to see this as a buying opportunity is Goldman Sachs.
According to a recent note, its analysts have put a conviction buy rating and $8.30 price target on its shares.
This implies potential upside of almost 32% for Qantas' shares over the next 12 months.
Why is Goldman so bullish?
Goldman believes the market is thoroughly undervaluing Qantas based on its positive outlook and significantly improved earnings capacity. In fact, its analysts highlight that its shares are still trading below pre-COVID levels despite this. The broker explained:
As a key beneficiary of the re-opening of the world post-COVID, we expect the airline's traffic capacity to return to 96% of pre-COVID levels by FY24e, with the airline's earnings capacity (EPS) expected to exceed that of pre-COVID levels by ~65%.
We forecast a ~14% FY19-24e cumulative uplift in unit revenues (c. 2.5%pa), and ~50% drop-through of QAN's A$1bn+ structural cost-out program. QAN's current market capitalisation and enterprise value are 1% above and 14% below pre-COVID levels. As such, we believe QAN is not priced for a generic recovery, let alone prospects for improved earnings capacity. We continue to see upside associated with substantially improved MT earnings capacity and include QAN in our regional Conviction List.
All in all, this could make the recent weakness a great opportunity for investors to pick up Qantas shares at a discount.
