In key news on Australian stocks, shares of Flight Centre Travel Group Limited (AU:FLT) fell by almost 2% today after Goldman Sachs analyst Lisa Deng downgraded her rating on the stock from Hold to Sell. Deng believes the growing competition in the SME (small and medium enterprises) space and the slowdown in travel recovery will exert downward pressure on the company’s margins and earnings. She also reduced her 12-month price target from AU$20.10 to AU$18.30, implying a downside of 14% from the current level.
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Flight Centre is a global leisure company serving both retail and corporate travel sectors, with operations spanning 24 countries.
Factors Behind FLT’s Rating Downgrade
Deng and her team observed that recent industry data indicates that the global travel rebound has reached its peak, showing initial indications of slowing growth. Moreover, corporate travel is also reflecting signs of levelling off, with volumes now at approximately 75% of pre-Covid levels. For FY24/25, the industry growth rate is expected to be modest, ranging from approximately 3%-4%.
Additionally, Deng highlights the growing competition in the SME corporate travel segment. Competitors like American Express Global Business Travel Group or Amex GBT (NYSE:GBTG) are aggressively expanding, especially through technological advancements and acquisitions, and challenging Flight Centre’s position. Consequently, analysts anticipate slower margin recovery compared to the consensus.
The analyst reduced the PBT (profit before tax) margin estimate from 2.3% to 2.1% for FY25/26. Consequently, Goldman’s PBT estimates are 9-11% below the consensus.
In February, Flight Centre released its first-half results for FY24, with a stellar growth of 565% in underlying PBT to AU$106 million compared to AU$16 million a year ago. In terms of outlook, the company expects an underlying PBT in the range of $300 million to $340 million for FY24. This marks an upward revision from the earlier forecast range of $270 million to $310 million announced earlier this year.
What is the Price Target for FLT?
According to TipRanks’ consensus, FLT stock has received a Moderate Buy rating based on six Buys, four Holds, and one Sell recommendation. The Flight Centre share price forecast is AU$23.47, which is 11% above the current trading levels.
