What’s Next For Delta Air Lines Stock After 10% Gains In A Month And An Upbeat Q1?

Delta (NYSE: DAL) reported its Q1 results earlier this week, with revenues aligning and earnings beating the street estimates. The company reported adjusted revenue of $12.6 billion and earnings of $0.45 on a per share and adjusted basis, compared to the consensus estimates of $12.6 billion and $0.36, respectively. In this note, we discuss Delta’s stock performance, some key takeaways from its recent results, and its valuation.

Looking at stock returns, DAL has shown gains of 25% from levels of $40 in early January 2021 to around $50 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. However, the increase in DAL stock has been far from consistent. Returns for the stock were -3% in 2021, -16% in 2022, and 22% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that DAL underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including CAT, GE, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could DAL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, DAL stock looks like it has more room for growth. We estimate Delta’s Valuation to be $55 per share, reflecting over 15% upside from its current levels of $48. Our forecast is based on a little over 8x P/E multiple for DAL and expected earnings of $6.50 on a per-share and adjusted basis for the full year 2024. The company expects its earnings to be in the range of $6.00 and $7.00, aligning with its prior guidance.

Delta’s revenue of $12.6 billion (adjusted) in Q1 was up 6% y-o-y, driven by a 7% rise in the total available seat miles. The passenger revenue per available seat mile remained flat, while the load factor improved by 200 bps to 83%. The company saw its adjusted operating margin expand to 5.1% from 4.6% in the prior year quarter. This can be attributed to lower fuel expenses, which fell 5% y-o-y to $2.6 billion. Higher revenues and margin expansion led to an 80% y-o-y rise in the bottom line to $0.45 on a per-share and adjusted basis.

The company expects its Q2 revenues to rise between 5% and 7%, and earnings per share to be in the range of $2.20 and $2.50, compared to the consensus estimates of 6% and $2.24, respectively. Overall, Delta navigated well in Q1, and its guidance for the current quarter also looks solid. We think that DAL stock is poised to see higher levels, going forward.

While DAL stock looks undervalued, it is helpful to see how Delta Air Lines’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 4/12/2024
[2] Cumulative total returns since the end of 2016

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