Qantas Airways Limited (ASX: QAN) shares are ascending on Thursday morning.
At the time of writing, the airline operator's shares are up 3% to $6.37.
Why are Qantas shares rising?
Investors have been bidding the company's shares higher today after the market responded positively to its FY 2023 results.
For the 12 months ended 30 June, Qantas reported a 118% increase in revenue to $19,815 million and an underlying profit before tax of $2,465 million. The latter was up materially from a loss before tax of $1,859 million a year earlier.
This profit means that the Flying Kangaroo achieved the upper end of its updated guidance for FY 2023 of profit before tax of $2,425 million to $2,475 million.
But the good news doesn't stop there. With its net debt much lower than its target range, the company's board has decided to return $500 million to shareholders via an on-market share buyback. This follows the recent completion of a $1 billion buyback of Qantas shares.
Broker response
The team at Goldman Sachs was impressed with the strength of the company's results. The broker commented:
PBT of $2,465m was within the $2,425-2,475m guidance range and 1% ahead of GSe. Group Capacity was in line with GSe and unit revenues (RASK) was 2% higher. Net debt was $2.89bn, 4% above GSe and well below the $3.7-4.6bn target range (ND was $4.7bn pre-COVID).
Other positives that the broker highlights are that "demand indicators remain resilient" and its "cost guidance is generally better given transitory cost unwind."
In respect to the former, Goldman said:
Group domestic leisure revenue intakes are 119% above pre-COVID vs 118% in May23. Leisure intakes 132% above pre-COVID levels while business intakes are 107% of pre-COVID. n Group International revenue intake is at 124% of pre-COVID vs 123% in May.
We believe that booking curve is up to 1.5mths for domestic and 4-5mths for international and this is set against 1H24e group domestic capacity at 103% pre-COVID and Group International at 89% of pre-COVID.
Is it time to buy?
As things stand, Goldman currently has a conviction buy rating and $8.50 price target on the company's shares. This implies a potential upside of ~33% for Qantas shares from current levels.
However, it is worth remembering that the broker has yet to adjust its models to reflect this update, so this could change in the coming days.
