Although the Qantas Airways Limited (ASX: QAN) share price is up 19% so far in 2017, one broker is tipping Australia's flag carrier airline to continue its ascent.
According to a research note out of Macquarie this morning, its analysts have reiterated their outperform rating and raised their price target on its shares to $4.90.
Based on yesterday's close price, should Qantas reach Macquarie's price target it would mean an impressive return of 23%.
Whilst that might be wishful thinking, I do agree with the broker that there is an investment opportunity here.
Despite OPEC's attempt to tackle the oil surplus and increase prices, increased production in the United States has largely offset its production cuts.
Not only has this sent oil prices lower, but I see little reason at this point in time to believe that there is any real chance of oil prices rising significantly over the next year or so.
As large consumers of jet fuel, this will be great news for Qantas and other airlines such as Virgin Australia Holdings Ltd (ASX: VAH) and AIR N.Z. FPO NZX (ASX: AIZ). As one of its biggest expenses, lower jet fuel prices means wider margins and more profitable operations.
This complements the great work that CEO Alan Joyce has done at cutting costs across the business. As a result the company expects to deliver a total of $450 million in transformation benefits this year.
Although demand in its international segment was a touch weaker than expected in the first-half due to competitive pressures, I expect this will improve in the second-half.
Especially with a new service to China being launched recently. The new service between Sydney and Beijing equates to an 18% increase in Qantas' total capacity into Greater China and a 7% increase in its total capacity into Asia.
Overall, I would have to agree with Macquarie on this one. I think Qantas could prove to be a good investment today.
