Last Update04 Oct 25Fair value Increased 1.15%
Delta Air Lines' analyst price target has edged up from $69.66 to $70.46, as analysts cite momentum in premium product offerings, positive revenue trends, and industry-wide transformation as key factors supporting a slightly more optimistic outlook.
Analyst Commentary
Recent analyst actions reflect heightened optimism around Delta Air Lines, with several firms raising their price targets and voicing confidence in key drivers of performance and future execution. Analysts see both near-term catalysts and long-term strategic shifts supporting Delta’s continued growth, but note that certain sector-wide and company-specific risks still merit attention.
Bullish Takeaways- Bullish analysts consistently highlight Delta’s premium product offerings and strong international network as primary sources of margin expansion and differentiation from peers.
- Recent upward revisions to earnings guidance have been met positively, with Q3 and FY25 projections exceeding consensus and fueling higher price targets from major Wall Street banks.
- Delta is viewed as well positioned to benefit from broader airline industry transformation, particularly as technology-driven merchandising elevates product quality and drives revenue per seat.
- Upbeat management commentary on stable demand across both corporate and consumer segments, along with robust transatlantic bookings, underpins confidence in Delta’s ability to capture continued top-line growth.
- Bearish analysts remain cautious about risks tied to U.S. domestic capacity trends, which could pressure unit revenues if supply outpaces demand.
- The path back to profitability for some industry players remains challenged, raising questions about potential competitive dynamics and pricing power in the sector.
- Inflationary pressures, notably from tariffs and operating costs, present an overhang to margin expectations, even as recent macro data has been benign.
What's in the News
- Delta is replacing power units on over 300 Airbus aircraft to address toxic fume incidents and mitigate health risks for passengers and crew (Wall Street Journal).
- The company has agreed to pay $78.75 million to settle a class action lawsuit related to a 2020 fuel dump incident over Los Angeles and Orange counties. Delta denies any wrongdoing (Reuters).
- Delta has faced criticism from lawmakers and consumer groups for using artificial intelligence to set airfares. The company plans for 20% of fares to be AI-determined by year-end (Wall Street Journal, Fortune).
- A Delta pilot was arrested at San Francisco International Airport on charges involving child sex abuse materials (New York Times).
- The U.S. government has threatened to revoke Delta and Aeromexico's antitrust immunity, citing concerns over anticompetitive practices and demanding greater regulatory oversight (Bloomberg).
Valuation Changes
- Consensus Analyst Price Target has risen slightly, moving from $69.66 to $70.46.
- Discount Rate has increased modestly, up from 9.48% to 9.65%.
- Revenue Growth projections have edged up, from 3.40% to 3.58%.
- Net Profit Margin estimates have improved marginally, rising from 6.85% to 6.92%.
- Future P/E ratio remains largely unchanged, slipping fractionally from 13.09x to 13.08x.
Key Takeaways
- Delta's strategy includes maintaining flat capacity growth and aligning supply with demand, positively impacting net margins through cost management.
- Emphasizing premium services and strategic partnerships supports revenue resilience and growth, enhancing market differentiation and customer loyalty.
- Economic uncertainty and competitive pressures threaten Delta's revenue growth and margins, with potential tariffs and stagnant corporate travel exacerbating challenges.
Catalysts
About Delta Air Lines- Provides scheduled air transportation for passengers and cargo in the United States and internationally.
- Delta Air Lines is focusing on protecting margins and free cash flow by maintaining flat capacity growth and aligning supply with demand, which is likely to positively impact net margins through cost management.
- Delta is capitalizing on resilient revenue streams such as premium, loyalty, and international segments, which are expected to continue growing and thus bolster overall revenue.
- The company has signed a 10-year agreement with UPS for its maintenance, repair, and overhaul (MRO) business, supporting long-term revenue diversification and growth.
- Delta is placing significant emphasis on delivering world-class customer service and reliability, which is a core part of its strategy to differentiate and protect market share, potentially improving earnings through customer loyalty and premium pricing.
- The reduction of growth and accelerated aircraft retirements are expected to lead to maintenance cost savings, contributing to improved net margins and earnings in the financials.
Delta Air Lines Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Delta Air Lines's revenue will grow by 3.4% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 7.2% today to 6.8% in 3 years time.
- Analysts expect earnings to reach $4.6 billion (and earnings per share of $7.39) by about September 2028, up from $4.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $6.3 billion in earnings, and the most bearish expecting $3.2 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, up from 8.8x today. This future PE is greater than the current PE for the US Airlines industry at 10.5x.
- Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 9.44%, as per the Simply Wall St company report.
Delta Air Lines Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Economic uncertainty and stalled growth, particularly in domestic and main cabin travel, pose risks to Delta's revenue growth and net margins as demand softens.
- Reducing capacity in response to decreased demand may limit Delta's ability to increase revenue and negatively impact its operating margins.
- The potential imposition of tariffs on aircraft purchases could increase Delta's capital expenditures and affect profitability if unresolved.
- Challenges in the corporate travel sector, which is currently flat, might worsen with prolonged economic uncertainty, impacting revenue from a typically lucrative segment.
- The strength of competitor low-cost carriers can pressure Delta's pricing, particularly in weaker main cabin and off-peak segments, which may squeeze margins and decrease revenues.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $67.81 for Delta Air Lines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $59.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $68.4 billion, earnings will come to $4.6 billion, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 9.4%.
- Given the current share price of $60.68, the analyst price target of $67.81 is 10.5% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) 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 price targets and estimates used are consensus data, and do 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
