Shares in travel companies such as Qantas Airways Ltd (ASX: QAN) have been under pressure since the start of the Iran conflict in late February.
Shares in the national carrier were trading just shy of $10 when the first attacks were launched by the US and Israel, and are now trading at $8.49, although keep in mind the shares went ex-dividend during this period.
Image source: Getty Images
Qantas shares still good value
The team at Macquarie have had a look at Qantas's valuation in light of the conflict and believes that there's still plenty of upside to be had.
That said, they believe that jet fuel costs in the short term will be a negative.
As they said in their research note to clients:
Entering the third week of the conflict, we adjust our earnings forecasts down to reflect a structurally higher crack spread for the rest of FY26, and the limited ability to pass through the higher costs. With 90 days to run, much of the sales have already been made across international, domestic and Jetstar.
"Crack spread" refers to the differential between the cost of a barrel of crude oil and the cost of refined products such as jet fuel.
The Macquarie team also believes Qantas has some flexibility in capital management.
Balance sheet remains robust. FY26 dividend we anticipate would move back to the base level of about $0.396 per share, i.e., 4.6% yield, reflecting a 50% payout if the $150m share buyback is executed, which remains our default assumption. Leverage remains in the low half of the preferred range post downgrades, and recent currency strength should aid future capex spend.
On any disruptions caused by the Iran conflict, Macquarie says Qantas has flexibility, being able to retire planes or delay capital expenditure.
Price target lowered
Macquarie has lowered its target price for Qantas by 40 cents per share, but at $11.60, it is still well above where the stock is trading.
Qantas also recently settled a class action relating to flight credits during the pandemic, which was lodged against the company in August 2023.
Under the terms of the settlement, Qantas agreed to pay $105 million with no admission of liability.
Qantas said earlier this month:
The class action related to flights scheduled to depart between 1 January 2020 and 1 November 2022 that were cancelled by Qantas, and included allegations that the airline breached its contractual obligations regarding refunds. In August 2023, Qantas removed the expiry date on flight credits issued during Covid, meaning customers can request a cash refund indefinitely.
Qantas said it would recognise a provision for the settlement in its second-half results.
Qantas is currently valued at $13.2 billion.
