Why Qantas could be one the best shares to buy in the Asia-Pacific

Goldman Sachs thinks this could be one of the best investment opportunities around.

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Qantas Airways Limited (ASX: QAN) shares could not only be one of the best options for investors in Australia, but also in the whole Asia-Pacific region.

That's the view of analysts at Goldman Sachs, which have just added the airline operator's shares to their highly coveted Asia-Pacific conviction list. These are the most compelling investment opportunities in the region according to the investment bank's analysts.

And with only three other ASX shares making the list of 29, Qantas shares are in rarefied company.

What is the broker saying about Qantas shares?

The Flying Kangaroo has joined the likes of Lynas Rare Earths Ltd (ASX: LYC), Woolworths Group Ltd (ASX: WOW), and Xero Ltd (ASX: XRO), as well as Taiwan Semiconductor Manufacturing (NYSE: TSM) and Hyundai Motor Co, on the list after Goldman's analyst, Niraj Shah, predicted that its valuation gap with peers would soon close.

Commenting on Shah's bullish view on the airline, the broker said:

Niraj expects sustainably improved earnings capacity relative to pre-COVID, which is not reflected in Qantas' current valuation. He believes market concerns around: 1) investment in fleet renewal and customer experience, and 2) willingness to return capital to shareholders, is reflected in Qantas trading on 6.4x FY25E P/E versus regional/US peers trading on 9.1x, a discount of 29%. This is more than 2x below the historical 5Y average discount of 14%. Niraj expects this gap to narrow as QAN delivers earnings that are sustainably above pre-COVID levels and demonstrates ability/willingness to distribute capital to shareholders while renewing the fleet.

Goldman's analyst believes that earnings in FY 2024 will be up significantly on pre-COVID times and, importantly, be sustainable at these levels. The broker adds:

With capacity expected to be ~95% of pre-COVID levels in FY24E, Niraj forecasts group EPS of A$0.85, materially ahead of A$0.57 in FY19A, underpinned by the A$1bn cost out program implemented by the business during COVID and, importantly, he believes this is a sustainable reset, with an EPS forecast of A$0.96 in FY25E despite a 4% yoy decline in unit revenue.

In light of this, Goldman has put a conviction buy rating and a $8.05 price target on Qantas' shares. Based on its current share price of $6.10, this implies potential upside of 32% for investors over the next 12 months.

And with Goldman expecting a 4.9% dividend yield in FY 2025, there's potential for some dividend income to come the way of shareholders by this time next year.

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group, Taiwan Semiconductor Manufacturing, and Xero. The Motley Fool Australia has positions in and has recommended Xero. 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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