'Rates the best': Top broker says Flight Centre share price still has 40% upside

Up 30% in 2023, Flight Centre shares could be set to deliver more outsized gains in the year ahead.

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The Flight Centre Travel Group Ltd (ASX: FLT) share price joined the wider market selldown on Tuesday.

Shares in the S&P/ASX 200 Index (ASX: XJO) travel stock finished the day trading for $19.73 apiece. That was down 0.2% from Monday's closing price of $19.77 a share.

For some context, the ASX 200 finished the day down 0.54%.

Now, here's why E&P Capital believes the Flight Centre share price looks to be a bargain at this level.

Tailwinds ahead for ASX 200 travel shares?

The analysts at E&P Capital have a bullish outlook for all three of the leading ASX 200 travel stocks, with a positive rating on the Flight Centre share price, the Webjet Ltd (ASX: WEB) share price, and the Corporate Travel Management Ltd (ASX: CTD) share price.

According to the broker (courtesy of The Australian), "While the cyclical rebound from Covid is largely captured in expectations for FY24, we believe there is another leg to the rally."

Of the three ASX 200 travel stocks, E&P believes the Flight Centre share price could be poised to gain the most.

E&P said it ranked all three stocks "according to valuation, earnings predictability, management access, long-term growth potential, earnings quality and capital structure".

The broker said:

Based on this approach, Flight Centre rates the best. The strong tailwind for leisure is well known, as is the improved cost structure, but the dramatic rise in the corporate business (50% of total transaction value in FY23) is yet to be captured in the stock's rating.

The Flight Centre share price has already gained 30% over the past 12 months, driven by some strong performance.

In its FY 2023 results, the company reported a 127% year-on-year increase in revenue, which reached $2.28 billion.

The results for its underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) were even better. Flight Centre reported EBITDA of $302 million for FY 2023, up from a loss of $183 million in FY 2022.

"Flight Centre has recovered strongly from Covid, emerging with a better business mix and more efficient cost structure," E&P noted (quoted by The Australian).

"We believe the combination of positive momentum and efficiency gains will continue to drive strong profit growth over the next two years," the broker added.

E&P has a target of $27.68 for the Flight Centre share price.

That represents a potential upside of 40.3% from the current price.

Flight Centre share price snapshot

The ASX 200 travel stock has gained 121% since its 19 March 2020 pandemic lows.

Despite that huge rebound, the Flight Centre share price remains down 51% since the first trading day of 2020, when the stock closed at $39.94 per share.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Corporate Travel Management and Flight Centre Travel Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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