Qantas Airways Ltd (ASX: QAN) shares are flying high on Monday.
In afternoon trade, the airline operator's shares are up 3.5% to $10.88.
Why are Qantas shares taking off?
The catalyst for today's strong gain has been a broker note out of Macquarie Group Ltd (ASX: MQG) this morning.
According to the note, the broker has upgraded the Flying Kangaroo's shares to an outperform rating with an improved price target of $12.29.
Based on its current share price, this implies potential upside of 13% for investors over the next 12 months.
But the returns won't stop there. The broker expects the Qantas board to lift its dividend again in FY 2026. It is forecasting a fully franked dividend of 53.4 cents per share, which equates to an attractive 4.9% dividend yield.
This boosts the total potential return on offer with Qantas shares to almost 18%.
Why is the broker bullish?
Macquarie is feeling very positive about Qantas' outlook. This is thanks partly to the strength of its Jetstar (JS/JQ) brand and recent load factor (LF) data. It explains:
JQ continues to be the growth driver, both domestically and internationally, with the redeployment of JSA [Jetstar Asia].
In addition, it also highlights that Project Sunrise is approaching and should boost productivity and free up planes.
International, with material capacity, saw QF LF down and JS flat in July and that trend is likely to continue. For QF, the pressure on load factors is most evident on routes such as the US. August data indicates that PAX growth has moderated; however, the deployment of the A380 has improved the yield mix, resulting in a likely neutral net outcome.
With Project Sunrise approaching, we are excited about the significant productivity benefits expected on the London route. The new service will require only two aircraft, instead of three, to operate daily flights, delivering a substantial productivity dividend.
Overall, combined with lower fuel costs, strong cost discipline, and its newer fleet, the broker believes Qantas is well-positioned for double-digit earnings growth in FY 2026. It explains:
Outperform (prev Neutral). LF may have peaked and RASK is softening, but they are more than offset by softer oil prices, strong cost discipline, and the benefits of a newer fleet. FY26E EPS growth of +11% is attractive.
Valuation: TP is $12.29 (prev $12.00) reflects a 1.2x 3 yr average EV/ EBITDA (i.e., 4.4x), which is at the upper end of the historical range. Market leadership position with JQ and FF supporting QF are very hard to replicate.
