After 15% Gains This Year What To Expect From Delta Air Lines Stock Post Q2?

Delta (NYSE: DAL) is scheduled to report its fiscal Q2 2024 results on Thursday, July 11, and we expect the company to post downbeat results, with its revenue and earnings expected to be slightly below the street estimates. Although the company will likely benefit from improved capacity, its passenger revenue per available seat mile (PRASM) may see some downward pressure. The company’s earnings are also expected to be lower at $2.32 per share, per our estimates, reflecting a 13% y-o-y decline, amid higher costs. Although we think Delta will post a downbeat Q2, its stock looks attractive at its current levels of $46. Our interactive dashboard analysis of Delta’s Earnings Preview has more details on how the company’s revenues and earnings will likely trend for the quarter.  So, what are some trends likely to drive Delta’s results, and how has the company’s stock performed?

Firstly, let us look at Delta’s stock performance in recent years. DAL stock has witnessed gains of 15% from levels of $40 in early January 2021 to around $45 now, vs. an increase of about 50% 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 and HON, 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 ample room for growth. We estimate Delta’s Valuation to be $55 per share, reflecting around 20% upside from its current levels of $46. 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.

Looking at the previous quarter, 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.

Coming to the latest quarter, we expect the company to post adjusted revenue of $15.45 billion, compared to $14.61 billion the company reported in the prior year quarter. This reflects a 6% y-o-y growth, aligning with the company’s guidance of 5% to 7% growth. Delta will likely continue to benefit from increased corporate travel in the U.S. while it should also see expansion of its international revenue. However, an expected increase in non-fuel costs will likely weigh on its earnings. We expect the earnings to come in at $2.32 per share, versus $2.68 the company reported in the prior-year quarter. Delta has guided for its earnings to be in the range of $2.20 and $2.50 in Q2’24.

Overall, we think Delta will post a downbeat Q2, but it may have a better outlook for the second half of the year, boding well for its stock.