Delta Air Lines (NYSE: DAL) reported terrific earnings last week -- $0.45 per share (adjusted for one-time items), a full $0.10 above what most Wall Street analysts predicted for the airline. Delta followed up on the good Q1 news by predicting ahead-of-consensus earnings for Q2 as well, and 2024 as a whole, sparking a series of upgrades on Wall Street.
Notable among these was a note from Susquehanna's Christopher Stathoulopoulos, who raised his price target on Delta stock to $55 -- a prediction several other bank analysts agreed with. If they're right, Delta stock should gain more than 17% over the next 12 months from its current price.
Is Delta stock a buy?
But are they right?
In Stathoulopoulos' note, he argued Delta is optimizing its operations this year, aiming to improve efficiency and profits (which, if successful and sustainable, should lead to a higher stock price).
Delta has a good chance of making it happen. In last week's report, Delta noted strong demand from both domestic and international flyers, and a 14% acceleration in demand from business flyers -- an important profit driver. True, total revenue per available seat mile (TRASM), a crucial measurement for airline stocks, grew only 1% year over year, but cost per available seat mile, declined 6%, as did fuel costs for Delta planes, helping to boost the airline's profitability (last year, Delta lost money in Q1).
Assuming all goes as planned, Delta should earn at least $6 per share this year, implying less than a 10 P/E ratio even at Stathoulopoulos' projected $55 share price. While Delta does carry a hefty debt load, much of which was taken on to survive the pandemic, it expects to generate between $3 billion and $4 billion in free cash flow this year -- money that can be used to pay down the debt, and maintain and (hopefully) grow the meager 0.8% dividend.
I admit: I'm not as optimistic about Delta's forward value as Stathoulopoulos. But the share price looks fair today. If Delta paid a bigger dividend, I might even be a buyer.
Should you invest $1,000 in Delta Air Lines right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
