Last Update10 Jul 25Fair value Increased 22%
Wowsers!
With today's trading update on Q2, Delta has smashed all expectations: In a time of year when many others are struggling to turn a profit, reaping the bulk of their earnings over the summer and the Holidays towards the end of the year, the guys from Atlanta achieved a whopping 2.7 cents of gross profit per available seat mile (with total revenue per ASM at 21.4 cents and total cost per ASM at 18.7 cents). Small wonder the shares pop by over 10 per cent pre market.
Cash flow was also very healthy, allowing for a decent chipping away at net debt to the tune of $1.7bn from a total of $16.3bn at the end of 2024.
Delta keeps performing up and above of estimates - and outside of a return of trade war doom scenarios à la April, the stock remains the top favourite within the industry, allowing for a moderate increase of its fair value relative to April.
Update as of 10 April:
As written here in February, Delta is the leading carrier among the major US airlines and keeps that pole position even amidst the tariff-induced turmoil. True, the carrier had to jettison its record guidance for 2025 it had issued in January; still, Delta made a gross profit of roughly 1 cent per available seat mile in the traditionally weak winter quarter when other airlines struggle to turn any profit at all (my calculations from an adj. total revenue per seat mile (TRASM) of 18.97 cents and adj. cost per available seat mile (CASM incl. fuel) of 17.96 cents). Thus, the carrier made an almost exact landing at where I had estimated its margins a couple of weeks ago.
In terms of yield management, fleet management/modernisation and thus cost effectiveness, the guys from Atlanta continue to rule the roost. With any meaningful capacity expansion cancelled for the time being, DAL protects its average load factor and thus its yield which is outstanding for a legacy carrier in a cut-throat competition market such as air travel in the US, while roughly maintaining its market share.
Yet with its early warning about waning travel demand in March, my original assumptions in February re revenue growth and future PE had to be revised downwards from 4 to 2 per cent p.a. and 12, respectively, resulting in a fair value of about $53.50 a share. After DAL's quarterly numbers as of 9 April and the related poor visibility for the remainder of the year, I have to lower my anticipated PE further to 11, leading to a new fair value of about 49 bucks a share that still leaves some upside.
That said, there are two major threats to the company's prospects that shouldn't go unnoticed.
1) As with all major US airlines, its balance sheet is somewhat strained and always at risk of sudden, exogenous shocks such as another pandemic or a trade war in North America going rogue. Margins are so thin they simply cannot accomodate any major impact, so you got to be vigilant when investing in an airline even as big as this one.
2) The Trump administration's tariff wars threaten to weaken the US economy at least in the short to mid-term, thus reducing travel demand even more than anticipated in general and specifically on Atlantic routes that are among the most important cash cows of the industry.
That said, Delta ought to keep climbing relatively to its peers, even if on a less steep trajectory.
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Disclaimer
The user PittTheYounger has a position in NYSE:DAL. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
