Macquarie tips $800m buyback for Qantas shares

The airline business could decide to conduct a huge share buyback.

| More on:

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
  • One leading broker has suggested a massive share buyback could be coming soon from Qantas
  • Macquarie believes Qantas will carry a buyback worth up to $800 million
  • This is thanks to a strong and quicker-than-expected profit bounce back

Qantas Airways Limited (ASX: QAN) shares could get another boost if analysts at Macquarie are correct.

Airlines had a really tough time during the COVID-19 pandemic. There was a lot less demand for air tickets, so the airlines had to be supported with a lot of money.

But now things are looking a lot better for the sector, including Qantas.

Domestic travel is now back to pre-COVID levels, which is leading to airline profits jumping back towards 2019 levels. International travel is still recovering.

What's Qantas going to do with all of the extra earnings that it has suddenly has? Macquarie may have the answer.

A woman sits crossed legged on seats at an airport holding her ticket and smiling.

Image source: Getty Images

Share buyback?

According to reporting by The Australian, Macquarie believes the quicker-than-expected return to profit could mean that Qantas buys back up to $800 million of its shares through a share buyback. Dividends would then return, and it would begin paying tax again in the second half of FY24.

Macquarie thinks the ASX airline share can fund both its fleet renewal while also carrying out capital management for shareholders, meaning the buyback.

The newspaper reported that the broker said:

The operating conditions for Qantas are accommodating higher RASK (revenue per available seat kilometre) than we had anticipated considering tight capacity, in particular within international.

Whilst this operating environment is likely as good as it gets, with more capacity expected to see a RASK impact, it does mean that the near-term snap-back in earnings is much sharper than we had anticipated.

When will profit return to normal?

Qantas has already said that its domestic demand has returned to normal. However, the broker has projected that profit will normalise in FY24, though there will be economic issues for the airline to deal with.

Macquarie wrote:

At this point, we forecast the overall business to generate a 12.5% earnings before interest and taxes (EBIT) margin, which… supports around a $600m earnings benefit.

The broker noted that it won't be until the second half of FY24 that Qantas starts paying tax again because of carried-forward tax losses.

Broker rating on the Qantas share price

Macquarie rates Qantas as outperform, with a price target of $7.05. That implies a possible rise of close to 17% on the current price of $6.04.

Even though the Qantas share price is up 15% over the past month, I believe there is more recovery in store for the airline, despite the higher oil price.

Demand remains strong, after a few years of COVID-19 and lockdowns. It's not a very defensive business, but I think it's still a buy thanks to the elevated demand.

Motley Fool contributor Tristan Harrison 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 recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

Excited couple celebrating success while looking at smartphone.
Broker Notes

Why this ASX 200 share could be dirt cheap with a 7% dividend yield

Bell Potter is predicting 50% upside and a 7% dividend yield.

Read more »

A man raises his reading glasses in a look of surprise.
Broker Notes

Guess which ASX 200 stock could be worth $90 a share

Here's why one broker thinks this stock is heading much higher.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Broker Notes

2 ASX shares Morgans thinks are worth gobbling up right now

The broker sees big upside for these stocks.

Read more »

A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising
Broker Notes

Bell Potter says these ASX 200 stocks could rise 50%+

The broker has good things to say about these stocks.

Read more »

A smiling woman holds a Facebook like sign above her head.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

Happy man working on his laptop.
Broker Notes

Brokers name 3 ASX shares to buy right now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

3 buy-rated ASX shares in today's falling market

The market is now 4% down in 2026, but amid the volatility, experts say there are good buys available.

Read more »

a group of three cybersecurity experts stand with satisfied looks on their faces with one holding a laptop computer while he group stands in front of a large bank of computers and electronic equipment.
Broker Notes

Why Bell Potter is bullish on this ASX cybersecurity stock with 44% upside

This growing company could be worth considering according to the broker.

Read more »