The Qantas Airways Limited (ASX: QAN) share price is having a bit of a mixed week.
A lukewarm response to the release of the airline operator's market update has left its shares trading largely flat week-to-date.
One leading broker that believes investors should be taking advantage of this is Goldman Sachs.
What is the broker saying about the Qantas share price?
According to the note, unlike the market, the broker was impressed with Qantas' update earlier this week. It commented:
QAN's FY23 PBT guidance of A$2,425m-A$2,475m is higher than prev GSe of A$2,372m and Visible Alpha consensus estimate of A$2,399m. Costs were slightly below expectations (largely fuel), but so was capacity which suggests that unit revenue momentum was also better than expected. Once again, cash generation surprised with net debt guidance of A$2.7b-2.9b at Jun23, well below our price A$3.1bn despite QAN announcing an increased on market buy-back of A$100m. We note that guidance sits well below QAN's target ND [net debt] range of A$3.7b-4.6b.
In light of the above, the broker has kept the airline on its coveted conviction list and reiterated its buy rating with an improved price target of $8.50.
Based on its current share price of $6.48, this implies potential upside of 31% for investors over the next 12 months.
Why is Goldman so bullish?
Goldman highlights that the Qantas share price currently implies a market capitalisation only a touch above pre-COVID levels. That's despite its earnings and outlook being so much stronger now. It concludes:
Notwithstanding a decline in unit revenues (and group capacity still at 95% of pre-COVID), our estimated FY24e EPS sits 74% above pre-COVID levels. Despite this, QAN's market capitalisation is just 6% above pre-COVID levels and EV 8% lower. We acknowledge broader macro uncertainty at this point in the cycle, but we believe the current share price does not reflect the group's improved earnings capacity. Our 12m TP increases slightly to A$8.50 (A$8.30 prev.); retain Buy (on CL).
