Qantas shares have been a rollercoaster for shareholders over the past year, with shares in QAN ASX dipping as low as $3.12 from a 52-week high of ~7.40. with shares now trading up 5% this year to $4.71, we thought we better take a look and answer the question, Should I buy Qantas Shares in 2021?

About Qantas Airways (QAN ASX)

Qantas Airways Limited provides passenger and freight air transportation services in Australia and internationally. The company also offers air cargo and express freight services; and customer loyalty programs. As of June 30, 2020, it operated a fleet of 314 aircraft under the Qantas and Jetstar brands. The company was founded in 1920 and is headquartered in Mascot, Australia.

It is important to note the majority of Jetstar Routes are domestic routes.

QANTAS Shares Market Update

On the 20th May 2021, Qantas released an update to the market regarding their repair to the balance sheet and recovery after COVID ravaged the airline industry. In the update, QANTAS highlights the sustained domestic recovery which is driving strong cash generation.

QANTAS highlight that they expect to be cash-flow positive by 2H21, with Jetstar EBIT positive from April 2021. Jetstar was always expected to recover quicker than the overall group due to the high proportion of domestic routes that Jetstar operates.

One item that really stands out to us is the very strong balance sheet of the business, with over $4 billion in total liquidity. This includes over $2.4 billion in cash.

The group also flags that the recovery program is on track to deliver $600 million in ongoing cost reduction in FY21. It will be very interesting to see if these cost reductions hang around for some time to increase the profitability of the business going into future years.

COVID Continues to be a Concern

In the update QANTAS flag the extraordinary impacts that even a short lockdown can cause to the airline.

A three-day lockdown in Perth during April cost the Group an estimated $15 million in EBITDA. This follows the $29 million impact from the Brisbane lockdown in late March and the Sydney (Northern Beaches) outbreak that resulted in an impact of around $400 million in EBITDA for the period.

We can see that even these small outbreaks can wreak havoc on their earnings.

With the vast majority of the Australian population now starting to be vaccinated against COVID and the rest of the world opening up we can see these costs will be temporary blips in the radar in years to come.

From the market update provided on April 15th CEO Alan Joyce had the following to say in regards to COVID exposure and the impact of short lockdowns:

“As the recent lockdown in Brisbane showed, airlines and many other sectors remain vulnerable to snap travel restrictions until Australia’s vaccination rollout is complete.”

QAN ASX Fundamentals

Whilst things currently look bleak for QANTAS, let’s take a look at their results from 1HY21 (below). This is presented against 1H20 and 1H19 as a proxy for pre-covid related levels.

Source: Qantas Annual Reports

Whilst EPS has been decreasing, this trend is unlikely to continue, especially as Qantas resumes international travel. Below is a table of past EPS presented by QAN

DateEPS *
12/31/2020-2.07
9/30/2020-1.7
6/30/2020-1.3
3/31/2020-0.37
12/31/20190.52
9/30/20190.52
6/30/20190.52
3/31/20190.5
*GAAP earnings excluding extraordinary items.

As per the previous commentary in the COVID section of the report, there is potential that the EPS result from 31/12/2021 is the worst this will get, with things only improving from here on forwards. Prior to COVID QANTAS was typically increasing EPS year on year, which is a measure we like to see.

QANTAS outlines their focus on the aim of generating maintainable EPS growth, which should result in Total Shareholder Returns in the top quartile of the ASX100 and a basket of global airlines.

We have also included a chart below reflecting the impact of QAN ASX fundamentals.

Source: MSN Money

Qantas Shares Community Sentiment

After surveying 324 Prophet community investors about their current QAN ASX sentiment: BUY-HOLD-SELL as well as their target price over the next 12 months, here are the results:

Qantas Shares
Source: Raw Data from Survey

From the above, the Prophet Community member sentiment is a strong Hold-Buy Rating, with an average price of $6.13 per share.

Should I Buy QAN ASX: Prophet’s Take

QANTAS operates what one could contest as being one of the airline industry’s best businesses. Albeit Qantas and their shareholders have likely seen the worst for the time being and have blue skies to look up to. Qantas may have one of the best balance sheets in the entire airline industry.

With a massive 2.4billion of cash on their balance sheet. Prophet sees significant upside potential in the Qantas Share Price and has bought shares in Qantas at the current share price of $4.71 a share and a market capitalization of $8.9billion.

Qantas is a core business to the Australian people.

Please Remember all Articles Published on Prophet Invest are Opinion only

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