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Qantas share price tipped to test new highs next month

Brendon Lau

The Qantas Airways Limited (ASX: QAN) share price joined a special club of high-flyers after the stock recently soared to a record high.

Other large cap high achievers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index that are trading around their highest level in history include the likes of CSL Limited (ASX: CSL), James Hardie Industries plc (ASX: JHX), RESMED/IDR UNRESTR (ASX: RMD) and Xero Limited (ASX: XRO).

While there may be concerns about overstretched valuations clouding over the group, shares in the Flying Kangaroo are likely to push higher still if Morgan Stanley is on the money.

Why Qantas can keep flying higher

The broker believes there is a 70% to 80% chance that Qantas shares will rise over the next month to month-and-a-half, and the catalyst could come as soon as next Tuesday.

“We expect QAN will continue to outperform, given ongoing market focus on capacity discipline,” said the broker.

“In addition, we expect that QAN will provide an update on its medium-term strategic settings at the upcoming investor day (November 19, 2019).”

Wounded rival bolstering fortunes

A truce of sorts among airline companies is helping Qantas gain altitude. It also doesn’t hurt that Virgin Australia Holdings Ltd (ASX: VAH) is struggling and doesn’t have the financial muscle to compete aggressively with Qantas, like it used to.

Some of the things Morgan Stanley will be focusing on during the investor day include its medium-term capital expenditure guidance to upgrade its fleet or aircrafts, its cost-cutting program that is running through to FY20 and growth outlook for the highly valuable Qantas loyalty program.

The loyalty program is such a money spinner that Qantas has resisted spinning-off the business. That’s unlikely to change as there is no pressure on management to generate increased shareholder value through such a strategy. Qantas shareholders are a happy bunch given that the stock gained around 20% over the past year.

ASX stocks with a bright outlook

Qantas will want to keep that trump card in its back pocket for a time when its fortunes turn – and it wouldn’t take much given the number of factors outside the company’s control that can impact on its business.

But for now, brokers like Morgan Stanley think it’s blue skies ahead for the airline. The broker has an “overweight” recommendation on the stock with a price target of $7.00 a share.

Qantas isn’t the only blue-chip stock that’s worth putting on your radar. The experts at the Motley Fool have picked some of their favourite buys for 2020.

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The post Qantas share price tipped to test new highs next month appeared first on Motley Fool Australia.

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Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019