Delta Air Lines, Inc. (DAL) provides scheduled air transportation for passengers and cargo. Its segments include Airline and Refinery. The company also offers aircraft maintenance, engineering support, repair, overhaul services, and vacation packages. It operates a fleet of approximately 1,250 aircraft.

On August 15, DAL, Certares Management LLC, an investment specialist in travel, tourism, and hospitality, and Knighthead Capital Management LLC, an expert in turnaround investments, revealed an extended collaboration with Wheels Up Experience Inc. (UP), a top-tier on-demand private aviation provider.

Earlier this year, UP announced its intention to expand and refine its product offerings to deliver world-class private aviation services profitably. The funding injected by DAL, along with select Certares and Knighthead affiliates and other partners, is poised to grant UP the stability required for the execution of its strategic vision.

The partnership could enhance DAL's position in the travel and aviation sector. It could also diversify its investment portfolio, potentially leading to increased returns and influence in the lucrative private aviation market, contributing to long-term growth and profitability for the company.

However, DAL has revised its third-quarter profit expectations downward due to elevated fuel prices and unforeseen maintenance expenses. The adjusted profit forecast now ranges between $1.85 and $2.05 per share, down from the initial projection of up to $2.50 per share. Nonetheless, DAL maintains its annual profit guidance of $6 to $7 per share.

Shares of DAL have gained 9.8% over the past six months and 20.8% over the past year to close the last trading session at $37.

Let’s see whether investors should buy, hold, or sell the stock before its earnings report is released this week. Here is what could shape DAL’s performance in the near term:

Mixed Financials

For the second quarter that ended June 30, 2023, DAL’s adjusted operating income increased 72.6% year-over-year to $2.49 billion. Its adjusted net income and EPS grew 87.1% and 86.1% from the prior year’s period to $1.72 billion and $2.68, respectively.

However, the company’s adjusted free cash flow decreased 32% from the year-ago value to $1.09 billion. Moreover, as of June 30, 2023, DAL’s cash and cash equivalents stood at $2.67 billion, compared to $3.27 billion as of December 31, 2022.

Historical Growth Record

Over the past three years, DAL’s revenue increased at a CAGR of 17.9%. Its EBITDA grew at a 57% CAGR. In addition, the company’s total assets rose at a marginal CAGR during the same period.

Favorable Analyst Estimates

The consensus revenue estimate of $57.55 billion for the fiscal year ending December 2023 reflects a 13.8% year-over-year improvement. Likewise, the consensus EPS estimate of $6.10 for the ongoing year exhibits a 90.6% rise from the previous year.

In addition, analysts expect the company’s revenue and EPS for the next fiscal year (ending December 2024) to grow 1% and 11.1% from the previous year to $58.10 billion and $6.78, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, DAL is trading at 6.07x, 64.7% lower than the industry average of 17.20x. Its forward EV/Sales of 0.80x is 50.8% lower than the 1.63x industry average. Moreover, DAL’s forward EV/EBITDA of 5.18x is 51.8% lower than the 10.75x industry average.

Mixed Profitability

DAL’s trailing-12-month gross profit margin of 20.84% is 31.2% lower than the industry average of 30.30%. Also, the stock’s trailing-12-month EBITDA margin and levered FCF margin of 12.61% and 0.82% are 6.7% and 85.2% lower than the industry averages of 13.52% and 5.56%, respectively.

However, DAL’s trailing-12-month CAPEX/Sales of 10.93% is 271.7% higher than the industry average of 2.94%.

POWR Ratings

DAL’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DAL has a C grade for Quality, justified by its mixed profitability. In addition, the stock has a D grade for Stability, consistent with its 24-month beta of 1.34.

DAL is ranked #10 in the 28-stock Airlines industry. Click here to access DAL’s Growth, Value, Momentum, and Sentiment ratings.

Bottom Line

While recent collaborations indicate DAL's potential for significant long-term growth and expansion, the adjustment in profit expectations, coupled with lingering uncertainties, mixed financial performance, and a challenge in maintaining profitability and stability, suggest that waiting for a more favorable entry point in DAL could be wise.

How Does Delta Air Lines, Inc. (DAL) Stack Up Against Its Peers?

While DAL has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Airlines industry: Cathay Pacific Airways Limited (CPCAY), Air Canada (ACDVF), and Air France-KLM SA (AFLYY) with an A (Strong Buy) rating. For exploring more A-rated Airlines stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

DAL shares were trading at $35.37 per share on Monday afternoon, down $1.63 (-4.41%). Year-to-date, DAL has gained 7.86%, versus a 13.80% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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