Macquarie tips $800m buyback for Qantas shares

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

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

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

  • 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.

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

Buy and sell keys on an Apple keyboard.
Broker Notes

1 ASX 200 share to buy and 1 to sell now

Goldman Sachs has given its verdict on these two stocks.

Read more »

a smiling woman sits at her computer at home with a coffee alongside her, as if pleased with her investments.
Broker Notes

Buy this undervalued ASX 200 stock for a 40%+ return

Goldman Sachs thinks this stock is heading a lot higher.

Read more »

a woman holds a facebook like thumbs up sign high above her head. She has a very happy smile on her face.
Broker Notes

Morgans says these 3 ASX 200 shares are buys

If you are looking for some new ASX 200 shares to buy, then read on! That's because the three named…

Read more »

A young woman lifts her red glasses with one hand as she takes a closer look at news about interest rates rising and one expert's surprising recommendation as to which ASX shares to buy
Broker Notes

5 ASX stocks for $5,000 investments in December

Let's find out which shares brokers are tipping as buys right now.

Read more »

A woman wearing a yellow shirt smiles as she checks her phone.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

three businessmen high five each other outside an office building with graphic images of graphs and metrics superimposed on the shot.
Broker Notes

3 ASX shares catching broker upgrades this week

Analysts are turning more constructive on these names.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Technology Shares

Is the WiseTech share price heading for $200?

The path is set, according to one broker.

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Broker Notes

Goldman Sachs says these ASX 300 stocks can rise 15% to 30%

Let's see what the broker is saying about these buy-rated stocks.

Read more »