What Should Investors Know About Qantas Airways Limited’s (ASX:QAN) Future?

Based on Qantas Airways Limited’s (ASX:QAN) earnings update in December 2018, the consensus outlook from analysts appear somewhat bearish, with earnings expected to grow by 8.9% in the upcoming year relative to the higher past 5-year average growth rate of 54%. By 2020, we can expect Qantas Airways’s bottom line to reach AU$1.1b, a jump from the current trailing-twelve-month of AU$980m. 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. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

See our latest analysis for Qantas Airways

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

The view from 8 analysts over the next three years is one of negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

ASX:QAN Past and Future Earnings, July 23rd 2019
ASX:QAN Past and Future Earnings, July 23rd 2019

This results in an annual growth rate of -2.2% based on the most recent earnings level of AU$980m to the final forecast of AU$1.0b by 2022. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of A$0.60 in the final year of forecast compared to the current A$0.56 EPS today. Earnings decline appears to be a result of cost growth exceeding top-line growth of 2.5% in the next three years. Furthermore, the current 5.7% margin is expected to contract to 5.5% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Qantas Airways, I’ve put together three essential aspects 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!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.