Qantas share price: 3 things to know before this week’s Q1 update

We take a look at three things investors should know before Qantas releases its first quarter Trading Update to the market this Thursday.

Q1 market update

Qantas – the A$10bn blue-chip airline – is set release its Q1 FY20 trading update to the market this Thursday, October 24.

Qantas share price: the outlook

Qantas has been a modest performer year-to-date, rising a little over 13% since January. The investor response to the airline’s FY19 results was also mostly positive, with the company’s share price steadily ticking up since then.

A shareholder favourite – Qantas (ASX: QAN) remains committed to, ‘matching capacity with demand, together with growing revenue to recover higher fuel costs.’

Indeed, in the last five years the Qantas share price has risen over 300%, helmed by the steady hands of renowned CEO Alan Joseph Joyce.

Centrally and on the topic of fuel expenses – which sit as a major cost for any airline, for FY20, Qantas commented that the:

‘Total fuel bill is expected to increase to ~A$3.95 billion (up ~$100 million) and is fully hedged.’

In addition to this and overall, it was noted that:

‘Group capacity is expected to increase by ~1 per cent in in the first half of FY20. Group Domestic is expected to be flat to slightly down.’ Finally, Qantas commented that, ‘group International is expected to increase by ~1.5 per cent while competitor capacity is expected to decline by ~1 per cent in the first half of FY20.’

Yet now, as Thursday’s Q1 market update nears, investors will likely be keen to see just how closely reality has aligned with management expectations/ guidance.

The analyst take: is Qantas a buy?

Overall, analysts have taken a view skewed at the bullish end of the spectrum on Qantas stock. Heading into this week’s Q1 trading update and according to the Wall Street Journal, Qantas (ASX: QAN) currently has an overweight rating – with five out of ten analysts rating it a buy.

Citibank, for example, reiterated their buy rating and put a A$6.90 share price target on the company following its FY19 release. The investment bank was impressed by Qantas's guidance on fuel costs and appreciated the sturdy earnings generated in Australia's domestic market. Citi however cited sustained weakness in the Leisure and Corporate segments as potential risks.

UBS looks similarly optimistic on Qantas: upgrading their rating to buy from neutral and slapping an increased 12-month price target of A$6.40 on the airline – in the wake of its FY19 results. UBS ranks Qantas's commitment to A$400m of buy-backs and A$200m of dividends as two key positives. The investment bank is of the opinion that these buy-backs should support earnings per share growth of 13% over the next three years.

Macquarie Wealth Management has taken a slightly more subdued view to both UBS and Citi, rating the Qantas stock neutral, and hitting the company with a 12-month price target of A$6.15.

Specifically, while the international market remains robust, Macquarie flagged slowing domestic growth as a potential issue. The investment bank noted that this was particularly pronounced in 2H19 and commented that these challenges are likely to continue into 1H20.

The Qantas (ASX: QAN) share price was up around 0.23% before noon today.

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