Delta Air Lines, Inc. (NYSE: DAL)
Delta Air Lines is one of the biggest airlines in the United States with its headquarters situated in Atlanta, Georgia. Delta was founded in 1925 by Collett E. Woolman making it one of the oldest airlines in the world. Delta Air Lines reported solid third-quarter results and remains optimistic about the travel environment ahead, which led to the company seeing an increase in mentions by 206% prompting investors to wonder what makes the company gain such hype. Currently, shares of Delta Air Lines trade at $32.90 each.
Despite the poor performance of the airline industry through the COVID-19 years, things are picking up pace and Delta seems like the frontrunner. Here are some of the reasons you should consider taking a position in the company now.
Starbucks and Delta Air Lines recently launched a loyalty partnership that will allow customers to earn more rewards through both loyalty programs, thus expanding reach and encouraging more demand for Delta Air.
The company reported record revenue with a 23% surge last quarter despite operating with 17% less capacity than it did in the third quarter of 2019.
Although main cabin ticket revenue declined by 2% compared to 2019, due to lower capacity, premium cabin revenue jumped 8%.
Delta is also poised to reap big fuel cost savings from modernizing its fleet in the coming years. The carrier has over 300 new aircraft on order, enough to replace more than a third of its mainline fleet over the next five to six years. Most of these new planes will be at least 20% more fuel-efficient than the ones they will replace.
Delta's lucrative partnership with American Express is becoming more profitable than ever before. Last quarter, remuneration from American Express reached $1.4 billion, up 37% from 2019, thanks to strong spending on Delta's co-branded AmEx cards and a rebound in cardholder acquisitions. Additionally, Delta expects to receive $5.5 billion from American Express this year.
The company will also benefit from a step-up in the rate AmEx pays to buy SkyMiles next year, putting Delta on track to grow this high-margin revenue stream to $7 billion or more by 2024.
Management has set a target of generating adjusted earnings per share of over $7 and free cash flow of $4 billion by 2024, in line with the company's pre-pandemic results.
Cowen analysts upgraded shares of Delta Air Lines to Outperform from Market Perform with a $54 per share price target (up from $52). The raised price target reflects hiked 2022 EPS estimate to $2.84 and 2023 estimates going to $7.00, which analysts say is likely ahead of the management’s guidance. Delta said it expects to record $7.00 EPS for 2024.
Despite there being an ample number of reasons that would make it a good idea to take a position in Delta Air Lines right now, it is also important to consider the downsides of this opportunity. Here are some of them.
Investors seem more focused on threats like high inflation, soaring interest rates, and the slowing global economy which would inevitably lessen profitability for Delta.
A big jump in fuel prices put a fair amount of pressure on earnings. However, the carrier also reported a 23% spike in adjusted non-fuel unit costs relative to 2019. Inefficiencies are related to operating less capacity and extra investments to ensure reliability drove most of that cost pressure.
The industry still has plenty of room to grow because it's still significantly behind historical metrics in relation to the economy at large. End demand remains strong; airlines have pricing power, and demand is returning to the more profitable business travel market. Delta's earnings are improving significantly, and the airline will turn cash flow positive this year. Thus, considering the current price of Delta's shares, it’s a company that must be on your radar now and before the prices rise.
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