On Thursday, Jefferies adjusted its outlook on Delta Air Lines (NYSE:DAL), reducing the price target to $56 from the previous $58, while maintaining a Buy rating on the stock.
The revision reflects a more conservative estimate for the airline's second-quarter earnings per share (EPS), now set at a midpoint of $2.35, down from the initially anticipated top-end of $2.45. This adjustment aligns with Delta's own guidance, which ranges between $2.20 and $2.50.
The revised EPS estimate takes into account a 1.0% decrease in Total Revenue per Available Seat Mile (TRASM), a greater decline than the previously forecasted 0.1%. This change is in response to indications of weakening demand in the lower-end market segment, specifically within the Main Cabin, which constitutes 45% of Delta's revenue mix.
The analyst noted that the Main Cabin is facing challenges due to ongoing competitive capacity and discounting, trends that are expected to continue into the third quarter.
For the year 2024, Jefferies has also adjusted Delta's EPS projection to $6.35 from the earlier $6.65 estimate, taking into consideration a slightly softer revenue environment and cost absorption. The cost per available seat mile excluding fuel (CASM-ex) is expected to increase by 2.2%, up from the previously estimated 1.8%. This forecast remains within Delta's guidance of a low single-digit increase.
The new price target and EPS estimates by Jefferies reflect a cautious stance on Delta Air Lines' near-term financial performance, influenced by the broader industry trends and competitive pressures. Despite the lowered expectations, the firm continues to recommend Delta as a Buy, suggesting a positive long-term outlook for the airline's stock.
In other recent news, the U.S. Treasury Department has raised $556.7 million from the sale of warrants in 11 major U.S. airlines, which were initially issued as part of the government's COVID-19 relief efforts. Airlines such as American Airlines (NASDAQ:AAL), Delta Air Lines, United Airlines, and Southwest Airlines (NYSE:LUV) were among the recipients of the substantial aid packages.
In relation to Delta Air Lines, shareholders recently re-elected all twelve director nominees and approved the advisory vote on executive compensation at its Annual Meeting. Ernst & Young LLP was ratified as the company's independent auditors for the fiscal year 2024.
Financial institutions including HSBC Global Research, Argus Research, Evercore ISI, Barclays, Susquehanna Financial Group, and UBS Securities have given Delta a favorable outlook, maintaining buy and overweight ratings on the stock. Delta's first-quarter earnings per share for 2024 were reported at $0.45, surpassing estimates. The company expects a 5-7% year-over-year revenue increase in Q2.
In tandem, Delta and other major U.S. airlines are urging the government to address a chronic shortage of air traffic controllers as the summer travel season approaches. They have also challenged the U.S. Department of Transportation over a regulation mandating the upfront display of various airline fees. These are among the recent developments impacting Delta's operations and strategic decisions.
InvestingPro Insights
As investors digest Jefferies' updated outlook on Delta Air Lines, real-time data from InvestingPro provides a broader financial context. Delta boasts a high shareholder yield, indicating a commitment to returning value to investors.
Moreover, the airline is trading at a low earnings multiple, with a P/E Ratio of 6.17, suggesting the stock may be undervalued relative to its earnings. Analysts predict Delta will maintain profitability this year, backed by a solid performance over the last twelve months as of Q1 2023, with a Revenue Growth of 9.34% and an Operating Income Margin of 10.38%.
InvestingPro Tips highlight Delta's status as a prominent player in the Passenger Airlines industry, which aligns with Jefferies' positive long-term outlook. Still, it is worth noting that Delta's short-term obligations currently exceed its liquid assets, which could be a point of consideration for risk-averse investors.
For those interested in a deeper dive, InvestingPro offers additional insights and tips on Delta Air Lines, which can be accessed by visiting https://www.investing.com/pro/DAL. To enhance your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 5 additional InvestingPro Tips available for Delta Air Lines, providing a comprehensive analysis for informed decision-making.
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