On Monday, Jefferies, a global investment banking firm, increased its price target for Delta Air Lines (NYSE:DAL) shares to $72.00, up from the previous target of $58.00. The firm has maintained a Buy rating on the airline's stock. The revision comes ahead of Delta Air Lines' Investor Day scheduled for November 19/20 in New York City.
The analyst from Jefferies highlighted several key points of focus for the upcoming event. One of the primary topics is Delta's potential to guide earnings per share (EPS) to more than $10 by 2027, which would be significantly higher than the current estimates and consensus of $8.05 and $8.66, respectively. This represents a potential increase of 25% and 15% above the estimated and consensus figures.
The achievement of $10 per share and a 12.5% margin would require Delta to double the Total (EPA:TTEF) Revenue per Available Seat Mile (TRASM) compound annual growth rate (CAGR) to 2X compared to Jefferies' estimate of 0.8% or to maintain flat Cost per Available Seat Mile excluding fuel (CASM-ex) versus a CAGR of 1.2%.
Furthermore, the analyst projects that Delta could generate approximately $3 billion of free cash flow (FCF) per year. This FCF could support the airline's investment-grade leverage at sub-2X with an annual paydown of $2 billion, provide $0.4 billion per year in dividends, and allow for discretionary spending of $1.9 billion, which could add $0.40 to EPS, accounting for a 5% increase.
Additionally, there is potential for free cash flow to be allocated to share repurchases after dividends, with a capacity of approximately $7.5 billion, which could offer a 15% upside.
Delta Air Lines' Investor Day is anticipated to provide further insights into the company's financial strategies and growth prospects as outlined by the Jefferies analyst. The airline's stock price target upgrade reflects a positive outlook on the company's ability to increase earnings and shareholder value in the coming years.
In other recent news, Delta Air Lines and cybersecurity firm CrowdStrike (NASDAQ:CRWD) are embroiled in a legal dispute over a global outage in July. Both companies have initiated legal actions, with CrowdStrike seeking a declaratory judgment to establish that the disruptions were not due to their actions, while Delta alleges that a software update from CrowdStrike led to significant operational disruptions and financial losses exceeding $500 million.
In another development, Delta has suspended its flights between New York and Tel Aviv due to heightened conflict and safety concerns in Israel. The suspension is set to last through March, and the company has issued a travel waiver for affected passengers.
Turning to financial matters, Bernstein SocGen Group maintained its Outperform rating on Delta Air Lines. The airline reported $1.3 billion in pretax income for Q3 2024 and expects a 30% year-over-year earnings growth in Q4 2024. Delta also plans to repay $4 billion in debt for the year.
Lastly, Delta announced strong Q3 results and provided an optimistic outlook for 2025. The company anticipates a 2-4% total revenue increase for Q4 2024 and a 2 point operating margin expansion in 2025. Despite challenges faced, Delta achieved earnings per share at the high end of guidance and generated nearly $3 billion in free cash flow year-to-date.
InvestingPro Insights
Delta Air Lines' strong financial performance and market position are reflected in recent InvestingPro data and tips. The company's P/E ratio of 8.68 aligns with the InvestingPro Tip that DAL is "Trading at a low earnings multiple," supporting Jefferies' bullish outlook. This low valuation, coupled with the company's profitability over the last twelve months, suggests potential for upside, especially if Delta achieves the projected $10 EPS by 2027 as discussed in the Jefferies analysis.
The airline's robust financial health is further evidenced by its revenue of $60.31 billion in the last twelve months and an operating income margin of 10.39%. These figures underscore Delta's capacity to generate the substantial free cash flow projected by Jefferies, which could indeed support dividends and potential share repurchases.
InvestingPro Tips also highlight that Delta is "Trading near 52-week high" and has shown a "Strong return over the last three months," with a 55.8% price total return in that period. This momentum aligns with the positive sentiment expressed in the Jefferies upgrade and could indicate investor confidence in Delta's future performance.
For readers seeking a deeper analysis, InvestingPro offers 8 additional tips that could provide further insights into Delta's financial outlook and market position.
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