Delta Airlines (NYSE: DAL) has seen a significant increase in net income, surging by 3.5 times year-over-year to $4.6 billion in 2023. This boost can be attributed to higher revenues, lower fuel and interest costs, as well as a gain on the sale of securities. As a result, the company’s profitability has improved, leading to a 20% appreciation in its stock this year. Over a slightly longer period, DAL stock has shown strong gains of 25% from early 2021 to around $50 now, though it has not been consistent, with returns of -3% in 2021, -16% in 2022, and 22% in 2023, underperforming the S&P 500 in 2021 and 2023.
Consistently beating the S&P 500 has been challenging for individual stocks in recent years, including heavyweights in the Industrials sector and megacap stars. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. The HQ Portfolio stocks provided better returns with less risk compared to the benchmark index, displaying more stable performance metrics.
Looking ahead, with the uncertain macroeconomic environment characterized by high oil prices and elevated interest rates, there is uncertainty surrounding whether Delta could face a situation similar to 2021 and 2023 and underperform the S&P 500 or see strong growth. From a valuation perspective, there is potential for DAL stock to grow further, with a projected valuation of $55 per share, reflecting over 10% upside from its current levels. This estimate is based on an 8x P/E multiple for Delta and expected earnings of $6.50 per share for 2024.
In 2023, Delta’s revenue reached $58 billion, up 15% year-over-year, driven by increased capacity while average yields were slightly down. Operating income also rose by 33.5% in 2023, with an improvement in the operating margin to 9.1%. Despite a rise in SG&A expenditures as a percentage of revenue, average fuel prices fell 8% year-over-year, bolstering Delta’s margin profile. The company saw its net income increase from $1.3 billion in 2022 to $4.6 billion in 2023, with a decline in interest expenses and a reduction in total debt contributing to this growth.
On an adjusted basis, Delta’s net income doubled to $4 billion in 2023, leading to a surge in earnings from $3.20 to $6.25 per share. The company’s outlook for 2024 remains solid, with adjusted EPS expected to be in the range of $6 to $7. With the robust travel demand, Delta is positioned to continue expanding its margin profile in the coming years through disciplined spending, provided fuel prices remain stable. The company’s average fuel price per gallon in Q1’24 was $2.79, down 7% year-over-year, with expectations for it to be in the range of $2.70 to $2.90 in Q2’24.
Despite a 20% rise in DAL stock this year, there appears to be more room for growth. As Delta continues to benefit from the strong travel demand, investors may see higher levels for the stock. It is also important to analyze how Delta’s peers are performing on key metrics to gain a holistic view of the industry landscape. Comparisons with other companies across industries can provide valuable insights for investors looking to make informed decisions.
