While aggressive growth is tipped for Qantas’ earnings next year, headwinds will impact the national carrier’s share price in the short-term, according to Commonwealth Bank equities research out today.
Downgrading its rating from overweight to neutral after the airline said market conditions would “push down” yields and profitability, the bank has also slashed its profit before tax (PBT) estimate for the full year by 37 per cent.
It is expected higher yields, lower fuel costs and the benefits of the Emirates tie-up will see earnings bottom in full-year 2013 and grow aggressively next year.
And while there is valuation upside, “in the short term, we expect share price weakness until evidence of improved conditions,” said the report by commonwealth bank analysts Matt Crowe and Andre Fromyhr.
Flat yields and additional costs such as pilot back pay from the resolution of Qantas’ industrial action costing $25 million were blamed for the FY13 PBT being downgraded by 37.3 per cent.
Full-year 2014 PBT was also cut by 3.4%, though the analysts expect an increase in full-year 2015 PBT of 1.7%, “reflecting lower fuel costs.”