Why Did Delta Stock Rise 7%?

Delta stock (NYSE: DAL) was up 7% on Wednesday, November 6. While the broader markets rallied after the Trump victory, airline stocks at large saw an increased investor interest. Other than the DAL stock, United Airlines stock was up 9%, and American Airlines stock was up 6%. This can be attributed to the expectations from the Trump administration to carry a more friendly approach toward the sector. During his first term, Trump favored deregulation and reduced oversight of businesses, which is expected this time around as well.

This year has been good for Delta, with its stock surging 56%, compared to 21% gains for the broader S&P 500 index. Notably, the annual returns for DAL over the recent years were less volatile than the S&P 500. Returns for DAL stock were -3% in 2021, -16% in 2022, and 23% in 2023. Similarly, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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 environment with Trump taking the presidency, could DAL continue to see higher levels? We estimate Delta’s Valuation to be $64 per share, close to its current levels. Our forecast is based on 0.7x trailing revenues for DAL. This compares with the stock’s average P/S ratio of 0.8x over the last five years. Now, the Trump administration could turn out to be good for airlines, but there are near-term headwinds. Firstly, there is a supply chain issue, with limited supply of new aircraft. Delta has refurbished some of its planes amid delay in delivery of new aircraft. Secondly, there is abundant capacity available in the market, driven by low-cost airlines. Finally, the overall costs are elevated, weighing on profitability for airlines at large.

For perspective, let’s look at Delta’s Q3 performance. Delta’s revenue of $15.7 billion was up 1% y-o-y. While the company’s capacity improved by 4%, its average yields were down 3%. Its overall operating expenses grew by 6%, driven by higher salaries, landing fees. On the flip side, the fuel costs declined in mid-single-digits. Still, the company’s operating income was down 30%. There was the CrowdStrike outage issue in July, which led to customer refunds for cancelled flights, weighing on the company’s overall profitability. The CrowdStrike outage resulted in a $0.45 per share hit on the bottom line, which came in at $1.50. Both revenue and earnings missed the consensus estimates. Furthermore, the company’s sales guidance for Q4 fell short of the street expectations.

Overall, with a mix of some positives and potential headwinds, we believe DAL stock is fairly priced now. 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 11/7/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates