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Here's Why You Should Retain Delta Air Lines (DAL) Stock Now
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Delta Air Lines (DAL - Free Report) has been benefiting from an uptick in demand for leisure air travel, bolstered by commendable fleet upgrade efforts. However, the company's bottom line is getting hurt by high labor and fuel costs.
Factors Working in Favor of DAL
Improved air-travel demand, particularly on the domestic front, is aiding Delta Air Lines. Due to buoyant air-travel demand, management projects second-quarter 2024 total revenues (adjusted) to increase 5-7% from second-quarter 2023 actuals.
DAL’s liquidity position is encouraging. The airline ended first-quarter 2024 with cash and cash equivalents of $4.46 billion, much higher than the current debt level of $2.81 billion. This implies that the company has sufficient cash to meet its current debt obligations. DAL's efforts to repay its debts are encouraging too.
Highlighting its shareholder-friendly stance, management resumed paying quarterly dividends last year after a COVID-induced hiatus. In June 2023, DAL's board of directors approved a quarterly dividend payment of 10 cents per share. This resumption is indicative of Delta Air Lines’ progress on its three-year financial plan (which includes debt repayment of more than $10 billion in the last two years).
DAL's efforts to modernize its fleet are praiseworthy. To this end, Delta Air Lines inked a deal with Airbus in January to buy 20 A350-1000 widebody jets.
Driven by the positives, shares of Delta Air Lines have gained 21.8% year to date, easily beating the Zacks Transportation sector’s 12.6% growth.
Image Source: Zacks Investment Research
Key Risks
The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. Notably, oil price increased 16% in first-quarter 2024. Fuel price per gallon is expected in the $2.70-$2.90 band in second-quarter 2024.
Apart from rising fuel expenses, DAL is also burdened with expenses related to non-fuel unit costs. As a reflection of this, the metric increased 1.5% year over year in first-quarter 2024. Salaries and related costs hiked 12% to $3.79 billion. The increase was due to higher wages arising from the contract with pilots that was ratified in March 2023.
Non-fuel unit costs for the June quarter are expected to increase 2% from second-quarter 2023 levels.
Zacks Rank
Delta Air Lines currently carries a Zacks Rank #3 (Hold).
Air Lease has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 20.15%.
The Zacks Consensus Estimate for 2024 earnings has been revised 27.7% upward over the past 90 days. AL has an expected earnings growth rate of 29.96% for 2024. Shares of AL have gained 31.7% in the past year.
RYAAY is benefiting from buoyant air-traffic scenario post Covid. Traffic grew 10% during the first nine months of fiscal 2024. Management expects fiscal 2024 traffic to be 183.5 million. On the back of buoyant traffic scenario, its profit after tax also showed year-over-year improvement during the first nine months of fiscal 2024.
Load factor (percentage of seats filled by passengers) was a healthy 94% in the first nine months of fiscal 2024. The carrier’s measures to expand its fleet, to cater to the rising travel demand, also look encouraging. The Zacks Consensus Estimate for current-quarter earnings has been revised 5.1% upward over the past 60 days.
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Here's Why You Should Retain Delta Air Lines (DAL) Stock Now
Delta Air Lines (DAL - Free Report) has been benefiting from an uptick in demand for leisure air travel, bolstered by commendable fleet upgrade efforts. However, the company's bottom line is getting hurt by high labor and fuel costs.
Factors Working in Favor of DAL
Improved air-travel demand, particularly on the domestic front, is aiding Delta Air Lines. Due to buoyant air-travel demand, management projects second-quarter 2024 total revenues (adjusted) to increase 5-7% from second-quarter 2023 actuals.
DAL’s liquidity position is encouraging. The airline ended first-quarter 2024 with cash and cash equivalents of $4.46 billion, much higher than the current debt level of $2.81 billion. This implies that the company has sufficient cash to meet its current debt obligations. DAL's efforts to repay its debts are encouraging too.
Highlighting its shareholder-friendly stance, management resumed paying quarterly dividends last year after a COVID-induced hiatus. In June 2023, DAL's board of directors approved a quarterly dividend payment of 10 cents per share. This resumption is indicative of Delta Air Lines’ progress on its three-year financial plan (which includes debt repayment of more than $10 billion in the last two years).
DAL's efforts to modernize its fleet are praiseworthy. To this end, Delta Air Lines inked a deal with Airbus in January to buy 20 A350-1000 widebody jets.
Driven by the positives, shares of Delta Air Lines have gained 21.8% year to date, easily beating the Zacks Transportation sector’s 12.6% growth.
Image Source: Zacks Investment Research
Key Risks
The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. Notably, oil price increased 16% in first-quarter 2024. Fuel price per gallon is expected in the $2.70-$2.90 band in second-quarter 2024.
Apart from rising fuel expenses, DAL is also burdened with expenses related to non-fuel unit costs. As a reflection of this, the metric increased 1.5% year over year in first-quarter 2024. Salaries and related costs hiked 12% to $3.79 billion. The increase was due to higher wages arising from the contract with pilots that was ratified in March 2023.
Non-fuel unit costs for the June quarter are expected to increase 2% from second-quarter 2023 levels.
Zacks Rank
Delta Air Lines currently carries a Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks from the Zacks Transportation sector are Air Lease Corporation (AL - Free Report) and Ryanair Holdings (RYAAY - Free Report) . The two companies mentioned below presently sport a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Air Lease has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 20.15%.
The Zacks Consensus Estimate for 2024 earnings has been revised 27.7% upward over the past 90 days. AL has an expected earnings growth rate of 29.96% for 2024. Shares of AL have gained 31.7% in the past year.
RYAAY is benefiting from buoyant air-traffic scenario post Covid. Traffic grew 10% during the first nine months of fiscal 2024. Management expects fiscal 2024 traffic to be 183.5 million. On the back of buoyant traffic scenario, its profit after tax also showed year-over-year improvement during the first nine months of fiscal 2024.
Load factor (percentage of seats filled by passengers) was a healthy 94% in the first nine months of fiscal 2024. The carrier’s measures to expand its fleet, to cater to the rising travel demand, also look encouraging. The Zacks Consensus Estimate for current-quarter earnings has been revised 5.1% upward over the past 60 days.