Delta Air Lines (NYSE:DAL) stock could also be a recent high flyer, but that doesn’t mean the shares are expensive. After looking closely at the corporate’s valuation and just-released quarterly results, bargain hunters could also be convinced to strap in and buy a couple of shares.
In case you haven’t noticed, airfares haven’t been low cost these days. With the burden of inflation potentially inhibiting flight activity, investors might wonder if travel demand — and consequently, Delta’s bottom line — would have been grounded in the primary quarter.
Because it seems, Delta managed to keep up its track record of profitable quarters and even surpassed Wall Street’s expectations. Thus, when you don’t mind being a passenger on a potentially turbulent flight, DAL stock might be your ticket to sky-high long-term returns.
Delta CEO sees “quite healthy” demand
A 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 arrogance of reluctant investors.
“We have now seen some real[ly] strong demand,” Bastian assured investors. “Clearly, the COVID-19-induced travel-demand slump of 2020 is way within 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… Yr up to now, we’ve seen the 11 highest sales days in our company’s history. That’s a robust predictor that the spring and summer season goes to be quite healthy on the travel side.”
That is great news for the corporate and its shareholders but additionally for purchasers. If Delta Air Lines can maintain a strong level of flight occupancy, it may not need to boost airfares.
Bastian looked as if it would hint at this when he stated, “We’re flying [an] even higher level of capability this summer than last, and we expect our overall pricing levels are going to stay largely the identical.”
Bastian’s reassuring tone probably won’t quell the financial markets today, because the Bureau of Labor Statistics (BLS) just released a hotter-than-expected Consumer Price Index (CPI) print of three.5% year-over-year growth for March. Nonetheless, while much of the market began off the day within the red, DAL stock was firmly within the green.
Even when Delta Air Lines stock zooms higher today, there’s still a bargain available. On a trailing 12-month basis, Delta’s GAAP-measured price-to-earnings (P/E) ratio stands at just 6.6, versus the sector-median P/E ratio of around 25.
Also keep in mind that DAL stock still hasn’t revisited its pre-pandemic peak of roughly $60. Thus, there should still be room for the stock to run this yr because it’s only approaching $50 now.
On the lookout for “continued strong momentum”
Bastian anticipates “continued strong momentum” for Delta Air Lines, but this means that the airline is already in a state of forward momentum. Nonetheless, the numbers do indeed bear this out.
For the quarter that resulted in March, Delta Air Lines reported operating revenue of $12.6 billion, up 6% yr over yr and ahead of the analysts’ consensus estimate of $12.5 billion. Moreover, this result marked a March-quarter record for Delta.
Interestingly, Delta’s quarterly travel-awards revenue increased 14% yr over yr to $844 million. Hence, it seems that the airline’s loyalty incentives are having the specified effect.
One other focal point is that Delta Air Lines’ quarterly managed corporate sales grew 14% yr over yr, “led by the return of huge corporate accounts.” Will this trend proceed in the present quarter and afterwards?
Delta is optimistic, stating “[R]ecent corporate survey results indicate that 90% of corporations expect their travel volumes to extend or stay the identical within the June quarter and beyond.”
For the complete yr of 2024, Delta Air Lines reiterated its earnings guidance of $6 to $7 per share. You may have expected the corporate to boost its outlook within the wake of its strong March-quarter financial results.
Perhaps Delta’s management is worried concerning the recent rise in fuel prices. Just last week, the worldwide average price for jet fuel jumped 4.3%. Consequently, it could be a prudent move for Delta Air Lines to maintain its full-year earnings guidance in check.
With all the foregoing in mind, prospective investors could have to weigh Bastian’s supreme confidence with Delta’s more moderate earnings outlook. Nonetheless, regardless of the way you slice it, Delta Air Lines’ rock-bottom valuation makes a share purchase hard to withstand.
Disclaimer: All investments involve risk. On no account should this text be taken as investment advice or constitute responsibility for investment gains or losses. The knowledge on this report mustn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.