The Qantas Airways Limited (ASX: QAN) share price is once again back in focus. This follows a difficult few years for the company, starting with the COVID-19 pandemic in 2020 and ending with a series of headlines that coincided with former CEO Alan Joyce's departure.
But 2024 has been a different year for the airline. Since January, the Qantas share price has rallied nearly 16% into the green, bouncing from lows of $5.01 on 6 March to trade at $6.22 apiece before the open on Friday.
Based on market dynamics and analysts' insights, I believe Qantas could trade above $8.00 per share by the end of FY 2025. Let me explain.
Why Qantas shares could be a buy
After an earnings slump spearheaded by the pandemic, Qantas looks well-primed to grow over the coming years.
Goldman Sachs recently added the Qantas share price to its "Asia-Pacific conviction list" for June.
It notes the airline could produce earnings per share (EPS) of 85 cents and 96 cents per share in FY 2024 and FY 2025, respectively. This is "materially ahead" of the 57 cents per share booked in 2019.
The broker also says Qantas looks undervalued compared to its peers. At the time of writing, it trades at a price-to-earnings ratio (P/E) of 6.7 times versus an average of 9.1 times for its regional and US competitors.
According to Goldman analyst Niraj Shah, this, and exceptional forecasted earnings growth, place Qantas on the runway for liftoff.
"Despite a higher fuel price and ongoing customer experience investment, Niraj forecasts [profit before tax] to be 51% above pre-COVID in FY24E and 61% higher in FY25E", the broker says.
This uplift reflects the group's A$1bn+ cost out program (rather than simply elevated yields/unit revenues that are arguably more cyclical). FY25E unit revenue assumptions reflect growth of only 3.0% p.a. vs pre-COVID, based on capacity setting that is largely consistent with pre-COVID levels.
Goldman has set a target of $8.05 apiece on the Qantas share price, implying a potential upside of 29% from today's value.
According to CommSec, 13 out of the 16 brokers covering the airline rate it as a buy, three as a hold, and 11 rate it as a "strong buy."
Catalysts for Qantas share price
I cannot ignore Goldman's 61% projected growth in pre-tax earnings for the company. But there are other catalysts worth mentioning.
The broker also suggests three potential tailwinds for the Qantas share price. First, "positive trading updates on operational performance" could be a factor. This reflects things like customer satisfaction, running times, and so forth.
This year's annual financial results could also add a thrust of buying power into the stock. Goldman reckons the numbers will show "sustainably" better earnings.
Finally, it suggests that investors should listen to management's commentary on FY 2025 and look for any positive takeouts, especially regarding dividends.
In fact, Qantas has announced an increase in its on-market share buyback by up to $400 million. Over FY 2025-2027, Goldman expects total capital returns of $1.6 billion — including $1.2 billion in dividends. This is a fourth catalyst for its share price, in my view.
Why Qantas shares are still cheap
Despite the broader market's rise, Qantas shares remain attractively valued. Currently trading at a P/E ratio of 6.7, they are significantly cheaper compared to the iShares S&P/ASX 200 Index ETF (ASX: IOZ)'s P/E of 18.
This tells us investors are paying much less for each dollar of Qantas' earnings.
If Qantas hits the projected EPS of 96 cents in FY 2025 and the P/E remains unchanged at 6.7, this implies a price target of $6.80/share (6.7 x 0.96 = $6.80).
But Goldman believes this multiple will converge to the peer average of 9.1 times, as Qantas delivers "earnings that are sustainably above pre-COVID levels" and potentially returns capital to shareholders. I can't say I disagree.
If it does increase to the 9-times multiple and Qantas hits EPS of 96 cents, this implies a value of $8.64 per share (9 x 0.96 = $8.64). I believe the Qantas share price could push to this mark by the end of FY 2025.
Promising future for Qantas
Given the combination of operational efficiency, strong earnings forecasts, and dividend potential, I think Qantas share price has a bright future. Broker estimates support that the Qantas share price could end FY 2025 above $8.00 per share.
As always – consider your own personal financial circumstances.
