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Delta Airlines Stock Is a ‘Buy’ Ahead of Earnings, Says Morgan Stanley
Stock Analysis & Ideas

Delta Airlines Stock Is a ‘Buy’ Ahead of Earnings, Says Morgan Stanley

The expected Airline recovery was put on hold during 2021’s latter half as Covid once again disrupted the industry’s comeback.

However, Morgan Stanley’s Ravi Shanker sees “normal service” resuming in 2Q22 and picking up steam in 2H22, laying the groundwork for a “strong” 2023. While the analyst believes the skies will part to include all incumbents, his preference is leaning toward Legacy airlines.

When heavy traffic returns, the analyst sees pent-up demand from corporate/international and the operating leverage afforded by Legacy airlines as reasons why this segment will lead the recovery charge. And Shanker’s preferred Legacy airline stock is Delta Airlines (DAL).

A look at Delta’s monthly website users shows us that Omicron fears might have been impeding travel numbers during 4Q21, with users displaying a sequential drop of 7%. Nevertheless, the quarter showed a marked improvement on the same period last year; users rose by 28% from 35.8 million in 4Q20 to 45.9 million in 4Q21.

The Street also expects a big improvement when the company reports 4Q21 earnings on Thursday (Jan 13, BMO). Consensus has adjusted earnings of $0.10 on sales of $9 billion, much better than adjusted EPS of -$2.53 and sales of $4 billion reported during the same period last year.

Looking ahead, the company has an ambitious plan in place which it presented in detail during its December 2021 analyst day. The company intends on building a “best-in-class premium airline,” based on Delta’s “operating and brand strengths” with the intention over the next 2 years of not only returning to pre-pandemic operating and financial benchmarks but exceeding them.

“We believe the key tenets of the plan and the management team have the track record and credibility to pull it off,” Shanker noted. “In the near-term, the pandemic will keep volatility high and visibility low, but over time, we think DAL’s 2024 target of $7+ EPS actually looks conservative.”

Investors will be eyeing the sector and Shankar thinks the plan is “credible enough to attract long-term investors to the story.” The question of when investors feel comfortable to get on board, says Shanker, depends on how the Omicron variant plays out in the next few weeks/months.

Overall, Shanker rates Delta an Overweight (i.e. Buy) and has a $60 price target for the shares. Shares could add 47% of muscle should the forecast pan out as planned over the next 12 months (To watch Shanker’s track record, click here)

Most of Shanker’s colleagues agree; based on 11 Buys vs. 3 Holds, the stock boasts a Strong Buy consensus rating. The forecast calls for one-year gains of 30%, given the average target currently stands at $53.31. (See DAL stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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