On Wednesday, Goldman Sachs (NYSE:GS) adjusted its stance on Flight Center Travel Group Ltd (FLT:AU) (OTC: FGETF), upgrading the stock from Sell to Neutral and increasing the price target to AUD20.30, up from AUD19.50.
The revision follows a period of underperformance by Flight Center, with its total shareholder return (TSR) falling by 7.4% since the previous downgrade on April 8, 2024, compared to a 11.5% rise in the ASX 200 Consumer Discretionary index and a 3.6% increase in the ASX 200 overall.
The initial Sell recommendation was influenced by expectations of moderating Corporate Total Transaction Value (TTV) growth post-normalization and intensifying competition in the high-margin SME sector, which was anticipated to lead to Corporate margins falling below consensus. However, during the announcement of the fiscal year 2024 results on August 28, Flight Center management confirmed that the market has returned to a growth rate of 4-5%.
Furthermore, management reported that both the multinational and SME segments are performing solidly, contributing to 50% of its Corporate A$2 billion new business. Goldman Sachs also noted the potential merger of Amex GBT and CWT, which could position Flight Center as the third-largest player in the US market upon the deal's completion.
The revised Corporate Profit Before Tax (PBT) margins forecast by Goldman Sachs for Flight Center remains at 2.1% for FY25 and 2.2% for FY26, which is slightly more optimistic than the Visible Alpha Consensus Data, which projects 2.15% and 2.35%, respectively. The firm suggests that the previously concerning factors have largely played out, prompting the more neutral outlook on the company's stock.
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