Believe it or not, Qantas (QAN) has been my single best returning idea of the year, 140% and still climbing. Unfortunately, not many people internally or externally thought that would be the case and very few domestic investors have benefitted from the QAN re-rating.
Airlines are trading stocks, and for the first time in a decade, everything is going right for QAN. On that basis, rather than taking trading profits, I am going to let this winner run and UPGRADE my price target to $3.00 from my long-held $2.00 price target (set when QAN was 97c).
While most of the market was over-analysing the Murray Report earlier this week, Qantas snuck in its first profit upgrade in living memory. The result was a 14% share price gain on the day.
I feel this is the infancy of an earnings UPGRADE cycle from QAN and that is why I am sticking with the stock despite my original price target being exceeded. Below is the FY15 consensus EBITDA forecast for QAN on Tuesday. It is approaching the $2 billion forecast I made back in May.
The Aussie dollar and oil price fall has happened faster than expected, the domestic capacity war has ceased and airfares are rising, while the oil price fall is reducing the structural cost advantage of the subsidised Middle Eastern airlines. This is all good news for Qantas.
Globally, airline equities are being re-rated and Qantas is going up with them.
Qantas consensus earnings are being revised up and unsurprisingly the analysts are chasing the share price with recommendations and price targets. This becomes somewhat self-fulfilling now as momentum funds enter the QAN register.
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I am simply going to reiterate my updated “trading buy” thesis on QAN from 2 September when QAN was $1.45. The two big macro events since then are the AUD (-11%) and Oil price (-35%) collapse. That is the key reason for my price target upgrade to $3.00.
Let winners run…
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