Wolfe Research Upbeat on Delta Air Lines Shares, Cites Strong Quarterly Performance
In a recent update on the airline industry, Wolfe Research has adjusted its perspective on Delta Air Lines, with a notable increase in the price target for its shares. The firm boosted its target to $60, up from the previous $57, and retained an Outperform rating on the stock. This adjustment reflects a positive outlook on the company’s performance and potential for growth.
The adjustment by Wolfe Research comes amidst a broader examination of the airline sector. Despite the Wolfe Research Airline index showing only a slight 0.2% increase this week and trailing behind the S&P 500 and the Transports index, Delta Air Lines has demonstrated exceptional growth. With an 18% increase year-to-date, Delta has outperformed peers such as United Airlines, American Airlines, and Southwest Airlines significantly.
This optimism follows Delta’s impressive first-quarter report and upward revisions in its guidance. Analysts at Wolfe Research have updated their financial models to reflect better-than-expected capacity, revenue per available seat mile (RASM), and cost per available seat mile excluding fuel (CASMx), alongside slightly reduced fuel costs anticipated in the second quarter.
As a result of these adjustments, the firm has increased its earnings per share (EPS) estimates for Delta, now expecting $2.34 for the second quarter, up from the earlier prediction of $2.03. The positive revisions also extend into the future, with the full-year 2024 EPS forecast raised to $6.50 from $6.25, closely mirroring Delta’s own projections. Predictions for 2025 have been elevated from $7.50 to $7.75, placing Wolfe Research’s expectations 3% above the consensus for the next year.
Currently, Delta trades at a price-to-earnings (P/E) ratio of 7 times Wolfe Research’s 2024 EPS estimate, slightly above its legacy airline counterparts. However, the firm speculates that with sustained free cash flow and ongoing debt reduction, Delta’s valuation could see further expansion.
The revised price target of $60 is based on a combination of metrics, including a target P/E multiple of 8.0x and an enterprise value to EBITDAR multiple of 6.5x. Wolfe Research maintains its positive stance on American Airlines alongside Delta, but has expressed caution regarding JetBlue Airways, attributing its Underperform rating to high valuations relative to its peers.
With the airline industry being highly competitive, accurate and timely analysis is critical for investors. Delta Air Lines has shown promising signs, marked by strong shareholder yields and a low earnings multiple, suggesting potential undervaluation. With a significant market capitalization and solid revenue growth, Delta positions itself as a leading player in the Passenger Airlines sector.
Recent performance metrics further bolster the case for Delta, showcasing impressive returns over the last three and six months. These performance indicators, combined with a positive outlook from analysts, suggest that Delta Air Lines may continue to be a profitable investment option going forward.
As Delta navigates the fluctuating dynamics of the airline industry, investors equipped with comprehensive analysis and insights can make more informed decisions on their investments, potentially benefiting from the airline’s promising trajectory.
