Delta Air Lines (NYSE:DAL) stock is also 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 is also convinced to strap in and buy a few shares.
In case you haven’t noticed, airfares haven’t been low price nowadays. 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 first quarter.
Since it seems, Delta managed to maintain up its track record of profitable quarters and even surpassed Wall Street’s expectations. Thus, while you don’t mind being a passenger on a potentially turbulent flight, DAL stock may be your ticket to sky-high long-term returns.
Delta CEO sees “quite healthy” demand
An element 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’ve got now seen some real[ly] strong demand,” Bastian assured investors. “Clearly, the COVID-19-induced travel-demand slump of 2020 is way throughout 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 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 goes to be quite healthy on the travel side.”
That’s great news for the company and its shareholders but moreover for purchasers. If Delta Air Lines can maintain a powerful level of flight occupancy, it could not must boost airfares.
Bastian appeared to 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 remain largely the similar.”
Bastian’s reassuring tone probably won’t quell the financial markets today, since 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 throughout the red, DAL stock was firmly throughout 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 remember 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 since it’s only approaching $50 now.
Looking out for “continued strong momentum”
Bastian anticipates “continued strong momentum” for Delta Air Lines, but which means 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. Furthermore, 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, plainly the airline’s loyalty incentives are having the desired effect.
One other point of interest is that Delta Air Lines’ quarterly managed corporate sales grew 14% yr over yr, “led by the return of giant corporate accounts.” Will this trend proceed in the current quarter and afterwards?
Delta is optimistic, stating “[R]ecent corporate survey results indicate that 90% of corporations expect their travel volumes to increase or stay the similar throughout the June quarter and beyond.”
For the entire yr of 2024, Delta Air Lines reiterated its earnings guidance of $6 to $7 per share. You will have expected the company to spice up its outlook throughout the wake of its strong March-quarter financial results.
Perhaps Delta’s management is apprehensive in regards to the recent rise in fuel prices. Just last week, the worldwide average price for jet fuel jumped 4.3%. Consequently, it could possibly be a prudent move for Delta Air Lines to keep up its full-year earnings guidance in check.
With all of the foregoing in mind, prospective investors could must weigh Bastian’s supreme confidence with Delta’s more moderate earnings outlook. Nonetheless, no matter the way in which 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 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 recommendation of their very own investment advisors in making trading decisions.