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In December 2018, Qantas Airways Limited (ASX:QAN) released its earnings update. Generally, it seems that analyst expectations are fairly bearish, with profits predicted to rise by 10% next year compared with the higher past 5-year average growth rate of 54%. With trailing-twelve-month net income at current levels of AU$980m, we should see this rise to AU$1.1b in 2020. Below is a brief commentary on the longer term outlook the market has for Qantas Airways. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
Can we expect Qantas Airways to keep growing?
Longer term expectations from the 11 analysts covering QAN’s stock 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. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of QAN's earnings growth over these next few years.
This results in an annual growth rate of -3.5% based on the most recent earnings level of AU$980m to the final forecast of AU$968m 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$0.64 in the final year of forecast compared to the current A$0.56 EPS today. Fall in earnings appears to be a result of cost outpacing top line growth of 2.4% over the next few years. With this high cost growth, margins is expected to contract from 5.7% to 5.2% by the end of 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For Qantas Airways, I've put together three important aspects you should further examine:
- 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.
- 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.
- 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 firstname.lastname@example.org. 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.