One of the worst performing areas of the S&P/ASX 200 Index (ASX: XJO) over the last couple of months has been the travel sector.
Due to lockdowns and the closing of borders, the sector has taken a massive hit and investors have been selling off travel stocks accordingly.
Are travel shares in the bargain bin now?
Flight Centre Travel Group Ltd (ASX: FLT)
The Flight Centre share price is now trading 78% lower than its 52-week high at $9.79. While I think it might be a little too soon to jump in, I have been very impressed with the way the travel agent has cut costs. By July Flight Centre expects its monthly operating costs to be approximately $65 million, which I estimate is a reduction from ~$223 million previously. This and its massive equity raising should ensure that it is in a strong position when the crisis passes. One broker that thinks it is worth buying shares is Morgans. Earlier this month it upgraded its shares to an add rating with a $13.00 price target.
Qantas Airways Limited (ASX: QAN)
The Qantas share price has descended 52% from its 52-week high to $3.59. Its shares have recovered materially since crashing down as low as $2.03. Investors appear a lot more confident on its future after it struck a deal for a total of $1.05 billion of additional liquidity. These funds will be used to secure the long-term viability of the airline and strengthen its position to navigate the fallout from the coronavirus crisis. As long as the crisis passes by the end of the year, I believe Qantas will be fine. This could make it worth considering as an investment, though it is certainly a high risk option. Last week UBS slapped a buy rating and $4.65 price target on its shares.
Webjet Limited (ASX: WEB)
The Webjet share price has crashed 86% lower from its 52-week high and is trading at $2.39. As well as coming under pressure from concerns over the impact of the coronavirus pandemic on its business, Webjet's shares have been hit hard by an extremely dilutive equity raising. As I wrote here yesterday, its shares may be down 86% but they are still not necessarily cheap. A recent note out of Morgan Stanley shows that it expects Webjet to generate earnings per share of 5 cents in FY 2021. Based on this, its shares are trading at 48x estimated FY 2021 earnings at present. Morgan Stanley is neutral on Webjet, but UBS is more positive. It has a buy rating and $3.75 price target on its shares.
