Delta Air Lines (DAL) stock experienced a decline of over 5% in early trading on Thursday. This came after the airline company met analysts’ expectations for its second quarter but provided a less optimistic outlook for the third quarter.
Key Takeaways
- Delta’s Q2 operating revenue increased by 6.9% year-over-year to $16.7 billion.
- Revenue per available seat mile decreased by 1.2% to 22.3 cents.
- Earnings per share (EPS) decreased by 11.9% to $2.36.
- Delta’s Q3 outlook fell short of analysts’ expectations, with anticipated EPS between $1.70 and $2.00.
- Wall Street remains bullish, with an average analyst target price of $60.58 for DAL stock.
Q2 Performance
In the three months ending June 30, Delta’s operating revenue saw a 6.9% year-over-year increase, reaching $16.7 billion. However, the revenue per available seat mile decreased by 1.2% to 22.3 cents. The earnings per share (EPS) also saw a decline of 11.9%, dropping to $2.36 from the previous year.
Delta CEO Ed Bastian praised the company’s performance, stating, “Thanks to the incredible work of our 100,000 people, Delta is delivering industry-leading operational performance and best-in-class service for our customers.” He highlighted that the company delivered record June quarter revenue and pre-tax income of $2 billion with a 15% operating margin.
Q3 Outlook
Despite meeting Q2 expectations, Delta’s outlook for the third quarter was less promising. The company anticipates total revenue growth in the range of 2% to 4% and earnings per share between $1.70 and $2.00. This fell short of analysts’ expectations of $2.05 per share.
“For the September quarter, we expect a double-digit operating margin and a pre-tax profit of approximately $1.5 billion,” Bastian said. He added that the company remains confident in its full-year guidance, which includes earnings per share in the range of $6 to $7 and free cash flow of $3 billion to $4 billion.
Wall Street’s Perspective
Wall Street remains optimistic about Delta’s future. According to S&P Global Market Intelligence, the average analyst target price for DAL stock is $60.58, representing an implied upside of more than 36% from current levels. The consensus recommendation is a Strong Buy.
BofA Securities analyst Andrew Didora noted, “Delta is a well-run airline with industry-leading operations, consistent pre-tax earnings pre-pandemic, and a focus on staying capacity disciplined.” He emphasized that Delta’s free cash flow potential in the coming years is a significant differentiating factor compared to other airlines.
BofA Securities has rated DAL stock as a Buy, citing its free cash flow targets of over $2 billion in 2023 and over $4 billion in 2024 as key factors.
Conclusion
While Delta’s Q2 performance met expectations, its softer Q3 outlook has raised some concerns. However, Wall Street’s bullish stance and strong analyst recommendations suggest that Delta remains a solid investment option for the long term.
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