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Qantas Airways Limited (ASX:QAN): Is It A Smart Long Term Opportunity?

Yolanda Lovett

In June 2018, Qantas Airways Limited (ASX:QAN) announced its earnings update. Overall, analysts seem cautiously bearish, as a 6.2% rise in profits is expected in the upcoming year, relative to the higher past 5-year average growth rate of 29.9%. By 2019, we can expect Qantas Airways’s bottom line to reach AU$1.04b, a jump from the current trailing-twelve-month AU$980.0m. Below is a brief commentary around Qantas Airways’s earnings outlook going forward, which may give you a sense of market sentiment for the company. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

View our latest analysis for Qantas Airways

What can we expect from Qantas Airways in the longer term?

Longer term expectations from the 10 analysts covering QAN’s stock is one of positive sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. To get an idea of the overall earnings growth trend for QAN, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

ASX:QAN Future Profit September 6th 18

By 2021, QAN’s earnings should reach AU$974.6m, from current levels of AU$980.0m, resulting in an annual growth rate of 0.7%. EPS reaches A$0.63 in the final year of forecast compared to the current A$0.56 EPS today. Earnings growth appears to be a result of a higher revenue growth of 3.0% outpacing cost increases. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 5.7% to 5.2% by the end of 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Qantas Airways, there are three key factors you should look at:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Qantas Airways worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Qantas Airways is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Qantas Airways? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.