Why are ASX investors so excited by the Qantas share price?

Investors' sentiment is positive on the airliner.

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Qantas Airways Ltd (ASX: QAN) has captured the attention of ASX investors as its share price has rallied more than 14% this year to date.

It closed the session slightly in the red yesterday at $6.11 apiece, not too far from its 52-week closing high of $6.30 in May.

Brokers are also bullish on the Qantas share price, with the consensus rating it a strong buy, according to CommSec. There are no sell ratings on the stock.

So, what's driving this excitement? Let's dive in.

Why is the Qantas share price soaring?

There have been numerous catalysts thrusting the Qantas share price higher in recent weeks. Goldman Sachs placed a buy rating on the airliner in a June note, with a price target of $8.05.

This target suggests a potential upside of over 31% from today's share price. For context, if you invested $20,000 in Qantas shares today, and the broker's projections are correct, the investment could grow to around $26,220.

It's hard to ignore the investor sentiment either. The airliner was valued at $5.08 apiece just 3 months ago.

Experts say that Qantas' potential earnings growth has improved compared to pre-COVID levels, yet this isn't reflected in its current valuation.

For instance, Goldman Sachs notes that its FY 2024/2025 profit before tax (PBT) projections are 51% and 61% ahead of pre-COVID levels, respectively. This in itself may be one driver.

But, at the same time, the Qantas share price is also trading at a price-to-earnings (P/E) ratio of 6.7, much lower than the average P/E of 9.1 for its regional and US peers, Goldman says. It is also far lower than the iShares Core S&P/ASX 200 ETF (ASX: IOZ) P/E of 18.4. This ETF tracks the benchmark index.

Despite this 63% discount to the benchmark ETF, its earnings projections for the next two years are far ahead of FY 2019. To me, it remains attractively valued.

This suggests that the market has yet to fully recognise Qantas' growth potential and might indicate that the share price is undervalued.

Promising future for Qantas

On Wednesday, the company announced it was buying the remaining 49% stake in online travel player TrpADeal.

For the stake, it paid $211 million. It had acquired the other 51% of the business two years ago. The rationale, it says, is to "deepen synergies". It says the deal could provide up to $50 million in annual cost synergies, whilst expanding the airline's customer network.

In my view, a positive outlook from management – especially regarding dividends – could further lift the Qantas share price.

The airline has announced an increase in its on-market share buyback by up to $400 million. On top of this, over FY 2025-2027, Goldman expects total capital returns of $1.6 billion, including $1.2 billion in dividends.

If Qantas hits the projected EPS of 96 cents in FY 2025 and the P/E ratio increases to match its peers, the share price could reach above $8 per share in my view.

Given the combination of operational efficiency, strong earnings forecasts, and dividend potential, the Qantas share price looks set for a bright future. Broker estimates support that Qantas shares could end FY 2025 above $8.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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