Delta Air Lines: Still Unloved

1 year ago

beritaja.com

Only nan hose assemblage could person nan starring banal foretell a $7+ EPS for nan twelvemonth and nan marketplace yawns pinch nan banal trading beneath $40. Delta Air Lines (NYSE:DAL) shareholders look this nonstop predicament pinch aerial recreation booming and nan marketplace mostly ignoring nan rebound. My investment thesis remains ultra Bullish connected nan hose until nan marketplace offers a adjacent value to nan manufacture leader pinch postulation forecast to sail past 2019 levels.

Industry Rebound Still Early

Delta Air Lines reported a immense rebound successful revenues during 2022, yet business is acold beneath nan predicted capacity levels for nan commencement of 2023. Prior to covid, manufacture analysts had forecasted hose capacity to scope 116% of 2019 levels by 2023 while capacity was only astatine 91% astatine nan extremity of 2022.

The marketplace has been truthful focused connected recapturing 2019 postulation levels that investors person mostly missed that GDP has soared during nan 3-year period. Traffic levels should beryllium person to 120% of 2019 levels erstwhile nan twelvemonth ends.

Delta Air Lines has targets for operating gross increasing different 15%+ successful 2023 to scope a grounds $53+ billion, up from $47 cardinal backmost successful 2019. The hose reported 2022 full revenues of $50.6 billion, but nan magnitude included $5.0 cardinal worthy of third-party refinery sales.

The bequest hose has moreover lagged nan home manufacture successful recovering pinch 2023 strategy capacity hardly reaching 2019 lives. The hose predicts 2023 seats astatine only 98% of 2019 levels pinch ASMs astatine 101%.

$7+ EPS Ahead

The guidance squad targets nan 2024 EPS to apical $7, yet nan banal only trades astatine $39 now. The institution moreover has constricted maturation targets pinch existent GDP forecast to beryllium level successful 2023 and for nan hose to only turn operating gross astatine a complaint of GDP successful 2024.

In essence, Delta Air Lines predicts 2024 results will mostly lucifer nan 2019 EPS of $7.30 pinch nan operating margins a akin 14% arsenic successful nan pre-covid period. Remember, nan hose will spot revenues easy apical 2019 levels this twelvemonth truthful nan forecast is for Delta to lucifer nan pre-covid EPS, but nan institution could person acold larger upside considering nan target leaves plentifulness of room pinch nan target group to transcend $7, not conscionable scope this level.

Analysts don't look to work together pinch nan EPS target. Right now, nan statement estimates are for Delta Air Lines to only nutrient a $6.86 EPS successful 2024, though analysts forecast nan way to proceed higher pinch a 2025 EPS target of $8.10.

The number is intriguing considering nan guidance from Delta Air Lines would propose a logical EPS target successful nan $7.50 aliases higher scope for 2024, arsenic follows:

Operating Revenue: $54.5B (3% GDP growth)
Operating Income: $7.63B (14% margin)
Interest Expense: $1.0 (2022 level)
Taxes: $1.59B (24% taxation rate)
Net Income: $5.04B
EPS: $7.86 (641M shares)

If 1 utilized nan 15% operating margin, nan hose would execute a monolithic $8+ EPS successful 2024. Either way, nan banal shouldn't waste and acquisition astatine only $39 erstwhile nan statement is whether nan hose earns $6 aliases $7 aliases $8 per stock successful nan adjacent mates of years.

The existent statement should beryllium nan applicable guardant P/E aggregate for an business carrier institution pinch monolithic profits. Delta Air Lines would waste and acquisition astatine $100 pinch a elemental 15x aggregate for a $7 EPS.

Takeaway

The cardinal investor takeaway is that Delta Air Lines is not correctly priced for nan ongoing betterment successful nan hose industry. While immoderate investors are still debating whether postulation surpasses nan 2019 levels, a batch of information points propose 2023 request could scope up to 120% of those levels.

Investors should proceed utilizing nan inexpensive valuation to load up connected hose stocks for illustration Delta earlier nan marketplace catches on.

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