Delta Air Lines (NYSE:DAL) stock may be a recent high flyer, but that doesn’t mean the shares are expensive. After looking closely at the company’s valuation and just-released quarterly results, bargain hunters may be convinced to strap in and buy a few shares.
In case you haven’t noticed, airfares haven’t been cheap lately. With the burden of inflation potentially inhibiting flight activity, investors might wonder whether travel demand — and consequently, Delta’s bottom line — would have been grounded in the first quarter.
As it turns out, Delta managed to maintain its track record of profitable quarters and even surpassed Wall Street’s expectations. Thus, if you don’t mind being a passenger on a potentially turbulent flight, DAL stock could be your ticket to sky-high long-term returns.
Delta CEO sees “quite healthy” demand
Part of a chief executive’s job description is to be a hype man. Nonetheless, Delta Air Lines CEO Ed Bastian’s optimistic remarks in an interview with Yahoo! Finance should bolster the confidence of reluctant investors.
“We have seen some real[ly] strong demand,” Bastian assured investors. “Clearly, the COVID-19-induced travel-demand slump of 2020 is far in the rear-view mirror now.”
To support his confident stance, the Delta CEO provided an eye-opening statistic:
“That momentum has continued internationally. It’s continued domestically… Year to date, we’ve seen the 11 highest sales days in our company’s history. That’s a strong predictor that the spring and summer season is going to be quite healthy on the travel side.”
This is great news for the company and its shareholders but also for customers. If Delta Air Lines can maintain a robust level of flight occupancy, it might not need to raise airfares.
Bastian seemed to hint at this when he stated, “We’re flying [an] even higher level of capacity this summer than last, and we expect our overall pricing levels are going to remain largely the same.”
Bastian’s reassuring tone probably won’t quell the financial markets today, as the Bureau of Labor Statistics (BLS) just released a hotter-than-expected Consumer Price Index (CPI) print of 3.5% year-over-year growth for March. Nonetheless, while much of the market started off the day in the red, DAL stock was firmly in the green.
Even if Delta Air Lines stock zooms higher today, there’s still a bargain to be had. On a trailing 12-month basis, Delta’s GAAP-measured price-to-earnings (P/E) ratio stands at just 6.6, as opposed to the sector-median P/E ratio of around 25.
Also bear in mind that DAL stock still hasn’t revisited its pre-pandemic peak of approximately $60. Thus, there should still be room for the stock to run this year as it’s only approaching $50 now.
Looking for “continued strong momentum”
Bastian anticipates “continued strong momentum” for Delta Air Lines, but this implies that the airline is already in a state of forward momentum. However, the numbers do indeed bear this out.
For the quarter that ended in March, Delta Air Lines reported operating revenue of $12.6 billion, up 6% year over year and ahead of the analysts’ consensus estimate of $12.5 billion. Furthermore, this result marked a March-quarter record for Delta.
Interestingly, Delta’s quarterly travel-awards revenue increased 14% year over year to $844 million. Hence, it appears that the airline’s loyalty incentives are having the desired effect.
Another point of interest is that Delta Air Lines’ quarterly managed corporate sales grew 14% year over year, “led by the return of large corporate accounts.” Will this trend continue in the current quarter and afterwards?
Delta is optimistic, stating “[R]ecent corporate survey results indicate that 90% of companies expect their travel volumes to increase or stay the same in the June quarter and beyond.”
For the full year of 2024, Delta Air Lines reiterated its earnings guidance of $6 to $7 per share. You might have expected the company to raise its outlook in the wake of its strong March-quarter financial results.
Perhaps Delta’s management is concerned about the recent rise in fuel prices. Just last week, the global average price for jet fuel jumped 4.3%. Consequently, it may be a prudent move for Delta Air Lines to keep its full-year earnings guidance in check.
With all of the foregoing in mind, prospective investors will have to weigh Bastian’s supreme confidence with Delta’s more moderate earnings outlook. However, no matter how you slice it, Delta Air Lines’ rock-bottom valuation makes a share purchase hard to resist.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
