QAN 0.74% $5.45 qantas airways limited

Anyone Calling Sub $2 for QANTAS ?, page-21

  1. 2,126 Posts.
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    Hi there!

    First post after lurking and learning

    Here are my thoughts re qan..

    Again, please do your own homework! Everything here is my own opinion.

    WARNING LONG READ! TL;DR = Strike price of $2 for ya boi!

    1. Pre coronavirus, they were looking at expanding their fleet by buying a bunch of 737 MAX planes and putting it through their 'rigorous' lenses of safety -> which tells me that the exec team have a vision for growth and expansion. Looking at cash on hand (more on that in a later point), they have enough to cover existing obligations.

    2a. Using their current EPS (0.553) and assuming annual growth of 10.93% (yahoo finance analyst estimates), EPS in Year 10 = $1.4

    2bi. Using a conservative P/E ratio (average of the 5yr high PE of 12.44 and 5yr low PE of 5.71) of 9.075 (you could use the forward PE of 10.36 but I'll use the more conservative estimate), the est. SP at year 10 is $12.76. Estimating a 15% annual growth (my target for them to grow, you could use a lower, more conservative %, so YMMV), and discounting it backwards to the present day, the "Fair Value" = $3.62

    2bii. Even with CMC Market Analyst Growth Est. of 18.8% and current PE of 7.57, Fair Value = $5.68 (50% Margin of Safety = $2.80)

    3. With a 50% Margin of Safety, my target/entry price is about $1.80 - $2.20

    4a. Looking at their last financial report, they have >1B in free cash flow.

    4b. Thinking about their FCF Yield (FCF of 1.2B over market cap of 3.772B) = about +31%
    (Compare this to Virgin (also doing pretty decent) at +9%, Lufthansa = -6.6%, United = +44%, ANA = -973%, Singapore Air = -20%, American Air = -9%), they have more than enough to fulfil their obligations.

    5. EV/EBITDA is looking healthy at 4.01 (Compared to Luft = 2.7, United = 4.1, ANA = 5.5, SQ = 5.7, AA = 5.9)

    6. I'm looking at a $1.80 - $2.2 entry point.
    Thanks for reading!
 
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