Thanks to a resurgence in business and holiday travel activity, airline stocks were one of the strongest sectors in 2023, outperforming the broader S&P 500 index. Although Delta Airlines (DAL) has benefited from robust global travel demand, the stock has not fared as well as investors hoped it would, falling more than 16% over the past six months, compared to a 6% rise in the S&P 500 index.
What’s more, over the past year, the sock has risen 15%, trailing the broader index’s 23% rise. But there’s still tons of value here, given Delta’s strong footing in both the domestic and international air travel markets. Whether buying the stock now or waiting until later is one of the many decisions investors are assessing ahead of the company’s fourth quarter fiscal 2023 earnings results which is due before the opening bell Friday.
According to the International Air Transport Association, the global airline industry is poised to earn net profit $25.7 billion in 2024, which would equate to a 10% rise year over year. Meanwhile, operating profit is projected to reach $49.3 billion in 2024, which is expected to be an $8.6 billion jump from last year. Just as impressive, the industry is expected to enjoy a 7.6% jump in revenue, reaching a record $964 billion in 2024.
Close to 5 billion people are expected to travel in 2024, compared the pre-Covid record of 4.5 billion people in 2019. All of which bodes well for Delta in the new year. Ahead of the Q4 report, investors will focus on management’s commentary to detect any bullishness in booking pricing, capacity growth from both domestic and international travel, where it has reported a gradual recovery. As such, Delta, a well-run airline with industry leading operations, remains one of the better bargains in transportation stocks.
For the three months that ended December, analysts expect Atlanta-based transportation giant to earn $1.16 per share on revenue of $13.55 billion. This compares to the year-ago quarter when earnings came to $1.48 per share on $12.29 billion in revenue. For the full year, earnings are projected to be $6.13 per share, rising from $3.20 a year ago, while full-year revenue of $54.6 billion would rise 19.7% year over year.
The quarterly and full-year estimates have remained pretty constant since the start of the quarter, suggesting analysts aren’t expecting any major surprises in the upcoming earnings results. With full-year revenue projected to rise close to 20%, comparatively Delta is still operating with the benefit of easier year-over-year metrics. Notably, for the quarter, revenue is expected to grow by about 10% year over year, driven by an uptick in domestic air-travel demand and what remains strong booking trends.
Given these positive top and bottom-line fundamental improvements, a case can be made that the airline industry has mostly recovered from the disruption suffered as a result of Covid. That said, the growth that the industry has lost over the past four years can’t be ignored. In the case of Delta, the management continues to make the best out of a tough situation. In the Q3 revenue grew 11% year over year to $15.48 billion, beating Street estimates by $354 million.
The management highlighted that “Coastal hub load factors expanded year-over-year, driven by growing demand in Boston and New York. Business travel continues to improve as corporates announce return to office initiatives.” Even more impressive, Q3 net income of $1.1 billion grew 58% year over year, thanks in part to declining fuel cost. Given these improving fundamental trends, Delta remains one of the better bargains in transportation stocks.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.