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Analyst Upgrades Delta Air Lines to Buy

Vaccination drives in the United States escalated in the spring, as leisure trips were planned and business travel picked up the pace. After a weak 2020 due to the outbreak of the pandemic, demand in the airline industry is gradually picking up, and the industry has begun to rebound.

This nascent recovery recently enabled U.S. legacy Delta Air Lines, Inc. (DAL) to post better-than-expected Q2 results. Following the earnings announcement, shares of the company rose 1.6% on July 15 to close at $41.35.

The Q2 results – while down compared to 2019 levels – showed solid sequential gains and came in above analysts’ expectations. Adjusted revenues of $6.35 billion fell 49% compared to the same quarter in 2019 but surged 76% sequentially. Revenue exceeded the consensus estimate of $6.2 billion. Meanwhile, the adjusted loss per share was $1.07 in Q2, better than analysts’ expectations of a loss of $1.40 per share.

Savanthi Syth of Raymond James sees DAL in a fundamentally sound position after the company reported its Q2 earnings. The analyst upgraded DAL from Hold to Buy, stating that the stock was “too hard to ignore at current levels.”

Her $58 price target implies upside potential of approximately 41% over the next 12 months. (See Delta Air Lines stock charts on TipRanks)

Syth is upbeat about the travel industry’s recovery. She is of the opinion that demand in the travel industry will continue to improve shortly, driven by the ongoing vaccine distribution in the second half of 2021.

In comparison to recreational trips, Syth is more optimistic about business demand improving in the near future. She said in a note to investors that demand for corporate business travel has returned to 40% of June 2019 levels and is predicted to grow to 60% in September and to as high as 80% by the end of the fourth quarter.

Based on Delta’s present fleet, Syth believes it will be tough for the airline to reach 2019 capacity. To address this, Delta has been working on expanding its fleet through aircraft purchases and leasing agreements.

The analyst expects Delta to provide a “longer-term capacity growth outlook” at its Investor Day to be held on December 16.

Looking forward, “Delta’s balanced capital deployment strategy”, “structural advantages,” and ability “to grow a higher margin business” should sustain its “relative operational and financial leadership versus legacy peers,” said the analyst.

Therefore, based on encouraging travel trends in recent times along with Delta’s debt reduction initiatives, the analyst believes that shares reflect an “attractive risk-reward” profile at current levels.

On TipRanks, DAL has a Strong Buy consensus analyst rating based on 10 Buys and 3 Holds. The average DAL price target is $57.92, reflecting 12-month upside potential of 40.1%.  

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.