Has the Delta Stock Rally Gone Too Far After Recent Capacity and Demand Updates?

• Wondering if Delta Air Lines is trading at a bargain, or if the price is finally flying too high? You are not alone. Investors want to know if it's time to board or wait for smoother skies.
• The stock has soared 13.0% in the last week and is up 8.8% year-to-date, hinting at renewed optimism or changing views about its upside.
• Much of this recent momentum follows positive updates around industry capacity, as well as heightened travel demand. Analysts and sector watchers are pointing to these as the main drivers behind Delta’s upward moves. News of route expansions and partnerships in the aviation industry has also helped reinforce this rally.
• As for value, Delta checks the box for 5 out of 6 key valuation metrics, giving it a score of 5. We will dive into those methods next, but later on, we will reveal an approach that gives an even more complete picture of Delta's true value.

Find out why Delta Air Lines's 2.2% return over the last year is lagging behind its peers.

Approach 1: Delta Air Lines Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to today's value. This approach helps investors determine how much a business is truly worth based on its ability to generate cash in the years ahead.

For Delta Air Lines, the most recent reported Free Cash Flow (FCF) stands at $2.3 billion. Analyst estimates project steady growth, with cash flow expected to rise to approximately $4.7 billion by 2028. Beyond that, cash flows are extrapolated out to 2035, incorporating both analyst consensus and reasonable long-term assumptions. These projections suggest continued gains in Delta's ability to generate cash. The Simply Wall St two-stage free cash flow to equity model offers a comprehensive long-term look beyond just the next few years.

According to these projections, the intrinsic value of Delta Air Lines stock is $108.33 per share. The DCF analysis indicates the stock is about 40.7% below its estimated intrinsic value, suggesting Delta is significantly undervalued at its current price.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Delta Air Lines is undervalued by 40.7%. Track this in your watchlist or portfolio, or discover 926 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Delta Air Lines.

Approach 2: Delta Air Lines Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used metric for valuing profitable companies like Delta Air Lines because it connects the stock price directly to its earnings power. This ratio helps investors gauge whether a stock is priced attractively relative to the profits it generates.

A "normal" or "fair" PE ratio for any company depends on several factors, including expected earnings growth, stability, and industry risks. Fast-growing or less risky businesses typically command a higher PE, while slower-growing or riskier companies should trade at a lower multiple.

Delta currently trades at a PE ratio of 9.0x. This is almost level with the airline industry average of 9.0x, and well below the peer group average of 20.1x. The market appears cautious, pricing Delta below the broader peer average despite recent momentum and favorable conditions within the industry.

Simply Wall St's proprietary "Fair Ratio" goes beyond comparing PE to simple averages. It factors in Delta’s unique earnings growth, profit margins, industry conditions, market cap, and risk profile to arrive at a more tailored assessment. For Delta Air Lines, this Fair Ratio is calculated at 13.4x, suggesting that, given its fundamentals, a higher multiple could be justified versus where shares currently trade.

When comparing Delta's current PE of 9.0x to its Fair Ratio of 13.4x, the stock appears undervalued on this basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Delta Air Lines Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative empowers investors to tell the story behind the numbers by combining your perspective on Delta’s future (including your own fair value, revenue, earnings, and margin estimates) with concrete financial forecasts to reach a valuation that reflects your beliefs about where the company is heading.

Unlike traditional valuation tools, Narratives link company news, business outlook, and analytical assumptions together, giving you a dynamic and easy-to-update forecast that translates directly into a Fair Value. This interactive approach is widely used on Simply Wall St's platform within the Community page, helping millions of investors shape or refine their buy and sell decisions by transparently comparing their Fair Value to the current share price.

Narratives automatically update as new events unfold, keeping your valuation in sync with earnings releases, industry shifts, or breaking news. For example, one Delta Air Lines Narrative projects a Fair Value of $49 per share based on cautious growth and margin outlooks, while another sees as much as $90 per share, reflecting greater optimism and higher future profit expectations. With Narratives, you can quickly see how different viewpoints shape value and instantly sense-check your stance against other investors in real time.

For Delta Air Lines, we will make it easy to follow with previews of two leading Delta Air Lines Narratives:

• 🐂 Delta Air Lines Bull Case

  Fair Value: $71.75

  Current valuation: 10.4% below Fair Value

  Expected revenue growth: 3.4%

  • Delta’s margin expansion is supported by cautious capacity growth, disciplined cost management, and a growing focus on premium services and strategic partnerships.
  • Analysts expect moderate yet steady revenue growth and tightening profit margins, with future earnings growth reflected in price targets.
  • Risks include economic uncertainty, domestic demand softness, corporate travel stagnation, and industry competition, but consensus indicates that the current price may allow for further upside.
• 🐻 Delta Air Lines Bear Case

  Fair Value: $59.84

  Current valuation: 7.4% above Fair Value

  Expected revenue growth: 3.5%

  • Delta remains recognized for efficiency and profitability among U.S. airlines, but early indications of slowing travel demand have moderated growth outlooks and fair value estimates.
  • Strains on the balance sheet and sensitivity to external shocks such as trade disputes or health crises present ongoing risks, especially given thin operating margins.
  • While Delta’s performance remains robust, the current price level may exceed fundamental fair value, suggesting caution regarding additional upside.

Do you think there's more to the story for Delta Air Lines? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com