Delta stock (NYSE: DAL) saw a 7% jump on Wednesday, November 6, fueled by a broader market rally following Donald Trump’s election victory. The airline sector piqued investor interest as well, with United Airlines rising 9% and American Airlines climbing 6%. This renewed enthusiasm is linked to expectations that the Trump administration will favor deregulation in the airline industry, similar to his first term.
Impressive Gains in the Airline Sector
This year has been particularly favorable for Delta, with its stock soaring 56%, significantly outperforming the S&P 500 index, which is up 21%. Over recent years, Delta’s stock volatility has been lower than that of the S&P 500. For instance, DAL’s returns were -3% in 2021, -16% in 2022, but rebounded to 23% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, consisting of 30 carefully selected stocks, has consistently outperformed the S&P 500, showcasing better returns with reduced risk.
Future Projections and Economic Factors
With Trump back in office, many wonder if DAL can sustain this momentum. Our valuation for Delta sits at $64 per share, closely aligning with current market levels. This is based on a 0.7x trailing revenue estimate, compared to the average P/S ratio of 0.8x over the past five years. While the Trump administration may be beneficial for airlines, there are immediate challenges ahead. A significant supply chain issue is affecting new aircraft availability. Delta has had to refurbish existing planes due to delays in new deliveries. Additionally, the market is currently saturated with low-cost airlines, creating excess capacity. Elevated costs across the board also weigh heavily on airlines’ profitability.
Analyzing Delta’s Q3 Results
To provide further context, let’s evaluate Delta’s Q3 performance. The airline reported revenues of $15.7 billion, marking a 1% increase year-over-year. While capacity rose by 4%, average yields fell by 3%. Operating expenses grew by 6% due to increased salaries and landing fees, although mid-single-digit declines in fuel costs offered some relief. Ultimately, Delta’s operating income fell by 30%. A notable outage from CrowdStrike in July prompted customer refunds for canceled flights, which impacted profitability, reducing earnings by $0.45 per share to $1.50. Both revenue and earnings figures fell short of analyst expectations, and guidance for Q4 did not meet market forecasts.
Conclusion: A Balanced Perspective
In summary, while there are both positive indicators and potential headwinds for DAL, we believe the stock is currently fairly priced. Understanding how Delta Air Lines’ Peers are performing on key metrics is essential for investors. For a broader comparison across industries, explore Peer Comparisons.
| Returns | Nov 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| DAL Return | 8% | 56% | 39% |
| S&P 500 Return | 1% | 21% | 158% |
| Trefis Reinforced Value Portfolio | 6% | 22% | 805% |
[1] Returns as of 11/7/2024
[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.
