Buying Qantas (ASX:QAN) shares is more than a COVID-19 recovery play: expert

This fundie reckons the airline has further to climb…

| More on:
A smiling woman in a hat holding a ticket takes selfie inside a Qantas plane next to the window.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Qantas shares were one of the hardest-hit during COVID
  • But the company also gave investors a strong recovery period
  • However, this fundie reckons the airline can fly even higher...

If one rack's the mind for a typical ASX COVID recovery share, the Qantas Airways Limited (ASX: QAN) share price would have to be one of the strong contenders. Qantas, largely due to its nature as an airline, was of course hard hit by the emergence of the pandemic two years ago. Between 21 February and 20 March 2020, the Qantas share price fell by a nasty 63% or so.

But it didn't take long for Qantas shares to change from COVID-19 victim to 'recovery play'. The Qantas share price rose by an enriching 142% or so between March 2020 and October 2021.

But more recently, we have started to see Qantas shares stagnate. The Flying Kangaroo remains down 8.5% over the past 12 months on current pricing. It's also down by 5.8% this year to date.

So are Qantas shares just a spent recovery play as they stand today?

Why Qantas shares are a buy: analyst

The answer is a definite 'no', according to Sean Drennan, High Conviction Fund analyst for fund manager Firetrail. Here's some of what he had to say on why he is bullish on Qantas shares right now:

COVID has not only dominated the headlines, but it has also dominated the stock market's perception of Qantas… But there are several factors that are currently being overlooked that make Qantas extremely compelling for investors willing to look through the headlines.

While Qantas is accruing losses, cash is still coming in the door, as people book flights in advance for future travel. Management also just raised $800 million through the sale of excess land. All up, this gives Qantas about $4 billion in available liquidity to withstand the turbulence… The key point here is that Qantas' balance sheet remains resilient…

As the dominant domestic airline, we are confident that Qantas will not only survive the pandemic, but emerge in a much stronger competitive position… There is a huge amount of pent-up demand.

The crisis hasn't been wasted…

Drennan points to a resurgence in worldwide travel bookings amid a relaxation of travel restrictions around the globe Looking at the medium- to long-term outlook, Drennan points to Qantas' competitive position as a key advantage for the company. That's especially true for the domestic market.

He also points to the $1 billion in costs that management has stripped out of Qantas over the pandemic as a reason to be bullish.

He concludes by predicting that Qantas will return to paying dividends in the not-too-distant future. That would boost shareholders' returns even further.

No doubt Qantas shareholders will be hoping that Drennan and Firetrail are right in their analysis of Qantas shares' potential. But we shall have to wait and see how the 'national carrier' fares over the next few years to be sure.

At Friday's closing Qantas share price of $4.85, this ASX 200 airline has a market capitalisation of $9.3 billion.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Travel Shares

A pilot stands in an empty passenger cabin smiling with his arms crossed looking excited
Travel Shares

What does Macquarie think Qantas shares are worth?

Let's see if the broker believes the Flying Kangaroo's shares can keep rising.

Read more »

Man sitting in a plane seat works on his laptop.
Travel Shares

3 reasons to sell Qantas shares today

A leading expert foresees headwinds building for Qantas shares.

Read more »

a passenger plane is on the tarmac with passenger shute attached with a view of the surrounding land and sunset in the background.
Travel Shares

Qantas share price lifts off on big Asian news

Qantas shares have surged more than 73% in a year. Here’s why they’re gaining again today.

Read more »

Man sitting in a plane looking through a window and working on a laptop.
Travel Shares

Could Virgin's IPO impact Qantas shares?

The recent IPO announcement could change the Australian aviation landscape. 

Read more »

Smiling woman looking through a plane window.
Travel Shares

Virgin Australia returning to the ASX with $685m IPO

Demand for domestic travel draws the airline back to the stock market.

Read more »

A woman ponders a question as she puts money into a piggy bank with a model plane and suitcase nearby.
Travel Shares

Here's the earnings forecast out to 2029 for Qantas shares

Can the airline generate even stronger earnings? Here’s what experts think.

Read more »

Man sitting in a plane seat works on his laptop.
Travel Shares

Qantas shares have doubled in less than 2 years. Are they a buy, hold or sell?

What do analysts think of the Flying Kangaroo?

Read more »

A woman reaches her arms to the sky as a plane flies overhead at sunset.
Travel Shares

Why the Qantas share price soared 20% in May to new all-time highs

With another stellar month in May, Qantas shares are up more than 79% in a year.

Read more »