On Friday, Goldman Sachs (NYSE:GS) resumed coverage on Delta Air Lines (NYSE: NYSE:DAL) with a positive outlook, upgrading the airline's stock to a Buy rating and setting a price target of $83.00.
The firm highlighted Delta's anticipated industry-leading margins in 2024, driven by a mix of revenue from premium and corporate segments, profitable non-airline ventures, and benefits from its segmentation strategy.
Goldman Sachs predicts that Delta's segmentation strategy will lead to sustainably higher profitability compared to historical norms. This strategy allows Delta to more effectively cater to different demand segments.
The Buy rating is supported by several key factors, including growth in loyalty revenue, strong performance in premium demand, and the rationalization or exit of competitors from key markets.
The analyst pointed to Delta's diverse revenue sources as a strength, particularly its profitable and durable non-airline revenue streams. These revenue streams are expected to contribute to Delta's robust margin profile. The analyst's optimism is also supported by Delta's Investment Grade rated balance sheet, which is seen as an indicator of the company's financial health and stability.
Delta's exposure to premium and corporate revenue is another cornerstone of Goldman Sachs' positive stance. As competitors adjust their market presence, either by scaling back or leaving certain cities, Delta is positioned to capitalize on these changes. This dynamic is anticipated to further enhance Delta's competitive edge and market share.
The firm's analysis suggests that the airline's loyalty programs will continue to grow, adding to the airline's revenue diversification and strengthening its financial position. Goldman Sachs' $83 price target reflects a confidence in Delta's ability to leverage these various advantages to achieve higher returns for shareholders.
In other recent news, Delta Air Lines has been the focus of a series of significant developments. TD (TSX:TD) Cowen and Jefferies have both expressed optimism for the airline's future financial performance, maintaining a Buy rating and increasing the stock's price target.
This comes in anticipation of Delta's investor day, where the company is expected to provide updated guidance for FY25 and unveil long-term targets, including potential margin benefits from fleet renewal and expansion of loyalty and co-brand card programs.
Delta Air Lines is also embroiled in a legal dispute with cybersecurity firm CrowdStrike (NASDAQ:CRWD) over a global outage in July, with both companies initiating legal actions. Delta alleges that a software update from CrowdStrike led to significant operational disruptions and financial losses exceeding $500 million.
Another development includes the suspension of Delta's flights between New York and Tel Aviv due to heightened conflict and safety concerns in Israel, set to last through March. Delta has issued a travel waiver for affected passengers.
On the financial front, Delta reported $1.3 billion in pretax income for Q3 2024 and expects a 30% year-over-year earnings growth in Q4 2024. The company anticipates a 2-4% total revenue increase for Q4 2024 and a 2 point operating margin expansion in 2025. Delta also plans to repay $4 billion in debt for the year. These are the recent developments for Delta Air Lines.
InvestingPro Insights
Recent data from InvestingPro aligns with Goldman Sachs' bullish outlook on Delta Air Lines. The company's P/E ratio of 8.96 and PEG ratio of 0.25 suggest that the stock may be undervalued relative to its earnings potential, supporting Goldman's view of Delta's attractive valuation.
InvestingPro Tips highlight Delta's strong financial performance, noting that the company has been profitable over the last twelve months and analysts predict continued profitability this year. This aligns with Goldman's expectations of industry-leading margins in 2024. Additionally, Delta's stock has shown robust performance, with a strong return over the last three months and trading near its 52-week high, reflecting investor confidence in the company's strategy and outlook.
For investors seeking a deeper understanding of Delta's financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
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