4 reasons this fund manager thinks Qantas shares are a cheap buy
Man sitting in a plane looking through a window and working on a laptop.
The Qantas Airways Limited (ASX: QAN) share price has seen its fair share of pain over the past year. It’s still down more than 10% since July 2023, as we can see on the chart below, despite a rally over the past two months.
Qantas has faced a number of negatives in the last few years, including the pandemic.
The ACCC launched a Federal Court against Qantas in August 2023, alleging that between 21 May 2021 and 7 July 2022, Qantas advertised tickets for more than 8,000 cancelled flights. It was also alleged that, for more than 10,000 flights scheduled to depart in May to July 2022, Qantas did not promptly notify existing ticketholders that their flights had been cancelled.
But the airline and ACCC announced yesterday, as reported by my colleague Bernd Struben, that Qantas had agreed to $20 million payments to customers and that Qantas would pay a $100 million penalty.
Investors may now be able to judge the Qantas share price on its merits. One investor is very bullish on the airline.
L1’s bullish view on the Qantas share price
The fund manager said Qantas remains “very well placed” over the next few years because it has “Australia’s best loyalty business which is expected to double earnings over the next five to seven years”. Qantas also has a range of new, more fuel-efficient aircraft, and ‘project sunrise’, which can enable direct flights from Melbourne and Sydney to London and New York.
It was noted by L1 that Qantas shares rallied in April after outlining plans to improve the loyalty offer to enable easier access for frequent flyer members to use their points. The revision to the loyalty offer had a “smaller impact on earnings than market expectations and the company clearly articulated the strong medium-term benefits of investing in the program.”
L1 also noted the airline has “sufficient balance sheet capacity” to continue its share buyback and recommence fully franked dividends next year.
Another positive for Qantas is that the new CEO, Vanessa Hudson, is “rapidly and methodically addressing customer ‘pain points’, which should improve sentiment from both customers and potential investors.”
L1 said the Qantas share price is trading at just 6x FY25’s estimated earnings, despite a “dominant industry position, exposure to the structural tailwinds of Asian inbound tourism to Australia and a high growth, capital-light loyalty division, which remains incredibly underappreciated by the market.”
Qantas share price snapshot
Since the start of 2024, the Qantas share price has risen by 10%.
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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 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 Scott Phillips.