Delta (NYSE: DAL) reported its Q4 results earlier this month, with revenues and earnings beating the consensus estimates. The company reported adjusted revenue of $13.7 billion, up 11% y-o-y and above the $13.5 billion consensus estimate. Its adjusted earnings of $1.28 per share were down 14% y-o-y but above the street estimate of $1.17 per share. In this note, we discuss Delta’s stock performance, some key takeaways from its recent results, and its valuation.

DAL stock has seen little change, moving slightly from levels of $40 in early January 2021 to around $40 now, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. Overall, the performance of DAL stock with respect to the index has been lackluster. Returns for the stock were -3% in 2021, -16% in 2022, and 22% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that DAL underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks, for heavyweights in the industrials sector, including UNP, CAT, and GE, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could DAL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, DAL stock looks attractive and will likely see higher levels over time. We estimate Delta’s Valuation to be $52 per share, reflecting over 35% upside from its current levels of $38. Our forecast is based on an 8x P/E multiple for DAL and expected earnings of $6.53 on a per-share and adjusted basis for the full year 2024. The company expects its earnings to be in the range of $6.00 and $7.00, lower than its previous guidance of over $7 per share. This didn’t bode well with the investors, and DAL stock plunged 10% since the company reported its Q4 results.

Delta’s revenue of $13.7 billion (adjusted) in Q3’23 was driven by a 15% rise in the total available seat miles, partly offset by a 3% decline in passenger revenue per available seat mile and a 100 bps fall in the passenger load factor. The company saw its adjusted operating margin contract to 9.7% from 11.6% in the prior year quarter. This can be attributed to higher fuel expenses. Higher revenues and margin contraction led to a 14% y-o-y fall in the bottom line to $1.28 on a per-share and adjusted basis. While we expect DAL stock to see higher levels over time, higher fuel prices, a challenging macroeconomic environment, and a likely decline in passenger yields are expected to weigh on Delta’s near-term performance.

While DAL stock looks undervalued, it is helpful to see how Delta Air Lines’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns	Jan 2024 MTD [1]	Since start of 2023 [1]	2017-24 Total [2]
DAL Return	-6%	16%	-23%
S&P 500 Return	2%	27%	117%
Trefis Reinforced Value Portfolio	0%	38%	611%

[1] Returns as of 1/24/2024
[2] Cumulative total returns since the end of 2016

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