Delta Air Lines Faces Market Pressure But Holds Long-term Gains
Delta Air Lines (NYSE: DAL) has seen a notable 13% drop in stock value over the past week, starkly contrasting with the S&P 500’s more modest 3% decline. Similar struggles beset the airline sector, where United Airlines declined by 12%, American Airlines fell by 14%, and JetBlue experienced a 7% setback.
This sector-wide decline stems from two significant factors: market volatility driven by new tariff measures from the Trump administration and rising trade tensions. A critical revelation from recent U.S. consumer spending data further complicates the landscape, as it shows the first contraction in consumer spending in two years, casting a shadow over investor outlook in the airline domain.
Despite these recent challenges, DAL Stock has remained 70% higher when considering its performance from early 2023. This increase is mainly due to:
- a 40% increase in the company’s price-to-sales (P/S) ratio, climbing to 0.57 compared to 0.41 in 2022;
- a 22% rise in revenue, moving from $51 billion to $62 billion, partly offset by:
- a 1% increase in shares outstanding, totaling 644 million.
In-depth analysis of these factors can be found in our dashboard on Why Delta Air Lines Stock Moved. Although DAL Stock has performed well in recent times, investors looking for steadier returns might find the High-Quality portfolio appealing, which has outperformed the S&P with returns exceeding 91% since inception.
Image by Cor Gaasbeek from Pixabay
Delta’s Growth Amid Economic Challenges
Delta has achieved revenue growth largely through capacity expansion. The airline saw a 24% increase in available seat miles (ASM) along with modest improvements in passenger yield, which rose 0.5%. Additionally, the occupancy rate enjoyed a remarkable boost of 150 basis points compared to 2022. Meanwhile, ancillary revenue sources like cargo and sales grew by 4% during the same timeframe.
Post-pandemic, the aviation industry has experienced a substantial rebound in travel demand. However, recent economic indicators hint at potential challenges. Persistent inflation has negatively affected consumer confidence, which has now dropped for three consecutive months as of February. A notable 0.2% drop in consumer spending in January marks the first contraction in two years.
Concerns are growing among investors that potential declines in consumer spending could adversely affect airline revenues, with international routes seen as particularly susceptible.
DAL Operating Income
Delta’s Financial Improvement: Margin Growth and Investor Outlook
Delta’s financial recovery has bolstered investor confidence, portraying a narrative of effective growth and operational efficiency. The airline’s operating margin has expanded from 7.2% in 2022 to 9.7% in 2024, highlighting strategic improvements in cost management.
This operational performance translated into significant profit growth, with adjusted earnings surging from $3.20 in 2022 to $6.16 in 2024. The company’s price-to-sales ratio has also increased, from 0.4x in 2022 to 0.6x now, reflecting market optimism regarding its financial outlook.
Delta Stock: Valuation Insights and Future Prospects
Currently, Delta Stock trades at $55 with a price-to-sales ratio of 0.6x, aligning with its four-year average. There’s a strong argument for valuation multiple expansion, as recent trends suggest that consumer spending on travel remains resilient despite varying economic signals.
The airline industry demonstrates considerable strength, evidenced by a surge in corporate travel spending in the U.S. Simultaneously, Delta has improved its balance sheet, reducing total debt from $31 billion in 2022 to $23 billion now. This reduction adapts the company well for future financial maneuvers.
Nevertheless, investors must consider potential risks, primarily in fuel pricing. Fuel costs comprise around 20% of Delta’s operational expenses, meaning external factors that increase fuel prices could have significant repercussions on profitability.
Estimations place Delta Air Lines’ valuation at approximately $77 per share, suggesting a 40% upside potential from its current price. Given this analysis, investors may wish to seize the opportunity during this market dip for potential long-term growth. The combination of steady travel demand, decreased debt, and improved operational efficiency puts Delta in a robust position for future performance.
For those seeking potential benefits from an upward revision in valuation, it’s worth exploring the High-Quality Portfolio, comprising 30 stocks that consistently surpass the S&P 500 over the past four years.
| Returns | Mar 2025 MTD [1] |
2025 YTD [1] |
2017-25 Total [2] |
| DAL Return | -9% | -9% | 23% |
| S&P 500 Return | -3% | -2% | 158% |
| Trefis Reinforced Value Portfolio | -3% | -5% | 651% |
[1] Returns as of 3/5/2025
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
