Now could be the time to pounce on Qantas Airways Limited (ASX: QAN) shares before they take off.
That's the view of analysts at Morgans, which see significant potential upside ahead for the airline operator's shares.
So much so, the broker has the company on its best ideas list and has named it as its preferred pick in the travel sector.
What is Morgans saying about Qantas shares?
According to a recent note, the broker has an add rating and $8.35 price target on the flag carrier airline's shares.
Based on the current Qantas share price of $6.30, this implies potential upside of almost 33% for investors over the next 12 months.
Why is the broker bullish?
Morgans is bullish on Qantas due to its belief that the company has significant near-term earnings momentum. It explains:
QAN is now our preferred pick 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 highlights that Qantas shares are trading at a meaningful discount to pre-COVID levels despite being a much stronger business now. 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).
A final reason Morgans is bullish is the company's positive outlook. It concludes:
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 EBITaccretive fleet reinvestment and further capital management initiatives (recently announced a A$500m on-market share buyback at its 1H23 result). There is also likely upside to our forecasts and consensus if QAN achieves its FY24 strategic targets.
