If you have room in your portfolio for a new addition, then Qantas Airways Ltd (ASX: QAN) shares could be worth considering.
That's the view of analysts at Goldman Sachs, which remain very positive on the Flying Kangaroo despite recent trading updates from US peers that hit investor sentiment hard.
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What is the broker saying about Qantas?
As mentioned above, Goldman notes that US airline stocks have been volatile recently, which has impacted Qantas' shares. It said:
Most airlines provided updates lowering unit revenue expectations except JetBlue (unchanged). This was largely explained by a mix of transitory impacts (e.g. severe snow, LA wildfires etc) and softer demand due to the uncertain macro backdrop. The bright spot to the MarQ updates were international/ premium cabins, with AAL, DAL, JBLU, and UAL noting international routes were still seeing strong demand, with DAL calling out transatlantic and transpacific specifically.
Investor concerns around macro uncertainty mainly centers on demand destruction given risk of recession (GS Macro Team currently estimates a 20% probability of a recession).
However, Goldman believes that airlines could respond to softening demand by cutting supply to protect their profits. It adds:
Based on observed discipline in the US market, we believe a supply response could reduce the adverse impact to profitability in a downturn and support earnings through-the-cycle (albeit this does not preclude losses across the board under the team's 'recession scenario').
Buy Qantas shares
In light of the above, the broker isn't concerned by what's been happening in the US and remains positive on Qantas.
So much so, it has retained its buy rating and $11.80 price target on its shares. Based on its current share price of $9.39, this implies potential upside of just over 25% for investors from current levels.
It also expects a 3.5% dividend yields over the next 12 months, boosting the total potential return to around 29%.
Commenting on its buy rating, the broker said:
QAN valuation remains attractive in our view. We expect QAN's sustainably improved earnings capacity to provide a solid foundation for the next stage of growth from fleet renewal program (initial benefits reflected in 1H25 results & FY25 guide). Despite peer weakness and subsequent valuation gap vs US peers narrowing, QAN is trading at a discount vs regional & US peers and at lower PE vs pre-COVID. Our A$11.80 target price is based on an equally weighted blend of DCF valuation and EV/EBITDA based SOTP valuation. Retain Buy.
