Qantas Airways Limited (ASX: QAN) shares are up 1.1% to $6.41 at the time of writing.
The S&P/ASX 200 Index (ASX: XJO) stalwart is moving with the market today. The benchmark is also well into the green, up 0.61%.
Some of today’s momentum may relate to exciting news out of fellow ASX 200 travel share Flight Centre Travel Group Ltd (ASX: FLT).
Flight Centre shares were up 15% in earlier trading. The bump relates to yesterday’s news of a $180 million placement to acquire United Kingdom-based luxury travel brand, Scott Dunn.
Should you buy Qantas shares ahead of the next report?
So, earnings season is upon us, and Qantas is due to announce its FY23 half-year results on 23 February.
The last time Qantas gave us an update was in November last year. It upgraded its earnings guidance for the second time in just over a month due to continued strength in travel demand.
The airline said it was on course to deliver a stronger-than-expected profit for FY23. This pleased investors, who bidded up Qantas shares by 6% on the day.
In terms of numbers, management estimated an underlying profit before tax of between $1.35 billion and $1.45 billion for the half. That was $150 million above the guidance range it gave in early October.
Qantas noted that limits on international capacity were driving domestic leisure demand.
All of this is pretty impressive, particularly given Qantas expects a record fuel bill for FY23. It estimates fuel costs of about $5 billion due to elevated oil prices.
Qantas said it also expected net debt to fall to between $2.3 billion to $2.5 billion by the end of December. This estimate was about $900 million better than its guidance just one month before.
So, if Qantas manages to achieve all of this or better, it’s likely to get a share price boost on 23 February.
What do the brokers think?
Well, it’s hard to find a broker not backing Qantas shares right now.
As my Fool colleague Tristan reports, Commsec has 12 buy ratings, two hold ratings, and no sell ratings on the travel stock. And that’s despite the Qantas share price hitting a post-COVID high of $6.69 last month.
Morgans is bullish on the Qantas share price. It ranks the company as its top travel stock under coverage “given it has the most near-term earnings momentum”.
The broker has an add rating and an $8.50 price target on Qantas shares.
In a new note, Morgans says:
Looking across travel companies globally, airlines are now in the sweet spot given demand is massively exceeding supply.
QAN is trading at a material discount compared to pre-COVID multiples, despite having structurally higher earnings, a much stronger balance sheet, a better domestic market position, a higher returning International business and more diversification (stronger Loyalty/Freight earnings).
The strong pent-up demand to travel post-COVID should result in a healthy demand environment for some time, underpinning further EBITDA growth over FY24/25.
Goldman Sachs has a conviction buy on Qantas shares. The broker reckons they could go as high as $8.20 within 12 months.
Goldman said: “We believe the stock is not appropriately pricing QAN’s improved earnings capacity.”
UBS also has a buy rating on Qantas shares with a price target of $7.60.
Will Qantas pay a dividend in 2023?
Goldman Sachs tips that Qantas might pay a 10-cent per share dividend in FY23 and 20 cents in FY24.
Morgans says Qantas is more likely to conduct share buybacks than pay dividends due to a lack of franking credits. It forecasts a $400 million on-market buyback to be announced with the half-year result.
Morgans doesn’t foresee any dividends from Qantas shares as far out as FY25.
