Flight Centre Travel Group Ltd (ASX: FLT) shares have had a challenging past year, declining 41% over the past 12 months.
That's significantly behind the S&P/ASX 200 Index (ASX: XJO), which is up 7% over the same timeframe.
With the ASX 200 Index trading near its all-time high, ASX investors may be struggling to find attractively valued investment opportunities.
Flight Centre is Australia's largest listed travel agent. It offers retail and corporate travel management businesses in four major regions: ANZ, the Americas, EMEA, and ASIA.
Given its depressed share price, could Flight Centre be a contender?
Let's see what one expert has to say about the ASX 200 travel share.
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Macquarie expects Flight Centre to outperform
In a 10 July research note, Macquarie Group Ltd (ASX: MQG) reiterated its outperform rating on Flight Centre shares.
The broker reduced its 12-month price target slightly from $16.20 to $16.05. However, given that Flight Centre shares closed at $13.30 on Friday, this still suggests a 24% upside from here.
When issuing this forecast, the broker cited several factors.
Macquarie addressed concerns regarding US travel volumes and activity, which had materialised in March and April. The broker said US volumes "appeared to be holding up better than feared, with 2QCY24 TSA data down only -0.9% yoy".
Macquarie also said conflict in the Middle East likely had caused some delays or cancellations in travel plans, which could impact leisure volumes.
On the subject of airfare deflation, Macquarie noted that while "the pace of airfare deflation has slowed it remains a headwind and is likely most severe in the US (domestic airfares down -3% in May yoy), where airlines have been rationalising capacity."
Despite these concerns, Macquarie believes Flight Centre shares are materially undervalued, given the share price decline over the past 12 months.
The broker said:
Our valuation multiple at ~7.3x group EBITDA is largely in line with the 2004-14 average…we believe FLT should trade at a higher multiple given its Corporate segment has grown to be >50% of group earnings vs. ~20% back in 2010, while TTV has increased from ~$2.5b to >$12.0b over 2010-24.
Hence, we expect FLT to see a valuation re-rate as its Corporate segment starts to deliver operating leverage while maintaining solid top line growth.
Foolish Takeaway
Flight Centre shares have materially underperformed the index over the past year. According to Macquarie, while several headwinds are likely to continue impacting the business over the medium term, Flight Centre shares are now attractively valued. ASX investors looking for businesses primed for a turnaround should consider adding Flight Centre to their watchlist.
