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Buy Delta or United Airlines Stock as Earnings Season Continues?
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Airline stocks have continued to move higher over the last few weeks, with the industry highlighting an area of the economy that could see growth in 2023.
The Transportation-Airline Industry is currently in the top 20% of over 250 Zacks Industries as travel demand is expected to be higher this year, driven by lingering pent-up demand following the pandemic.
With Delta Air Lines (DAL - Free Report) recently reporting Q4 earnings last Friday and United Airlines (UAL - Free Report) set to report on January 17, let’s see which stock may be the better buy at the moment.
DAL Review
Delta kicked off a much-anticipated earnings season among airline stocks that hopefully shows continued improvement and recovery on their top and bottom lines.
This was the case for Delta, with the company highlighting that consumer demand remains robust and drove strong demand through its fourth quarter of fiscal 2022, which saw operating revenue of $12.3 billion–8% higher than Q4 pre-pandemic levels in 2019.
Delta’s total revenue of $13.43 billion beat expectations by 3% and increased 43% year over year. On the bottom line, earnings ended up topping the Zacks consensus by 15% at $1.48 per share and rebounded 573% YoY.
Image Source: Zacks Investment Research
UAL Preview
Delta’s impressive report is another reason to be optimistic about other airliners set to report later in the month.
United Airlines, in particular, is expected to post EPS of $2.07 compared to -$1.60 in Q4 2021. This is in line with the most accurate estimate with an earnings surprise not expected. Still, Delta’s earnings beat makes the possibility of United topping expectations more plausible. And on the top line, United’s Q4 sales are forecasted to grow 49% YoY to $12.23 billion.
Image Source: Zacks Investment Research
Performance & Momentum
Both Delta and United sport an “A” Style Scores grade for Momentum. With much optimism surrounding consumer demand for travel in 2023, UAL stock is up +34% in the last month to trade near its highs Vs. DALs + 15%. Both stocks have largely outperformed the broader indexes with UAL also topping the Transportation-Airline Markets +15% while DAL is on par with this pace.
Image Source: Zacks Investment Research
However, over the last decade, DAL is now up +181% to beat UAL’s +108% and also top the benchmark. While UAL has lagged behind the S&P 500 its performance has outpaced the Transportation-Airline Markets +33% during this period.
Image Source: Zacks Investment Research
Valuation
After such impressive rallies over the last month, it is important to monitor the valuation of Delta and United Airlines stock.
To that note, Delta sticks out trading at $38 per share and just 7.04X forward earnings which is nicely below the industry average of 12.6X. Shares of Delta trade 77% below their decade high of 30.6X and at a 24% discount to the median of 9.2X.
In comparison, United trades at $51 per share and 7.4X forward earnings, also beneath the industry average. This is well below its absurd decade-long high of 747.2X but slightly above its median of 8.8X.
Image Source: Zacks Investment Research
Guidance & Outlook
Delta stock ended the last trading session down over 3% despite an impressive quarterly report as the company’s first-quarter guidance forecasted EPS between $0.15 - $0.40 a share. This came in below many analysts’ expectations with the Zacks Consensus for Q1 at $0.45 per share.
Image Source: Zacks Investment Research
Year over year, Delta’s earnings are now projected to climb 59% in FY23 at $5.10 per share, based on Zacks estimates. This is on par with Delta’s outlook of EPS between $5-$6 per share. Fiscal 2024 earnings are expected to rise another 29% to $6.57 per share with Delta believing they can achieve EPS of $7 a share. Earnings estimates are slightly up for both FY23 and FY24 over the last 90 days.
Pivoting to United before its Q4 report, full-year fiscal 2022 earnings are now expected at $2.11 per share compared to an adjusted loss of -$13.94 a share in 2021. Fiscal 2023 earnings are expected to rebound another 228% at $6.92 per share. Earnings estimates revisions have largely gone up for both FY22 and FY23 over the last quarter.
Image Source: Zacks Investment Research
Bottom Line
There could continue to be more upside left in these airline stocks, especially when looking at their current valuations. At the moment, United Airlines lands a Zacks Rank #2 (Buy) in correlation with earnings estimate revisions trending much higher for FY23. As for Delta, the stock lands a Zacks Rank #3 (Hold) with earnings estimates slightly higher for FY23 despite the company’s guidance for its first quarter EPS being below many analyst expectations.
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Buy Delta or United Airlines Stock as Earnings Season Continues?
Airline stocks have continued to move higher over the last few weeks, with the industry highlighting an area of the economy that could see growth in 2023.
The Transportation-Airline Industry is currently in the top 20% of over 250 Zacks Industries as travel demand is expected to be higher this year, driven by lingering pent-up demand following the pandemic.
With Delta Air Lines (DAL - Free Report) recently reporting Q4 earnings last Friday and United Airlines (UAL - Free Report) set to report on January 17, let’s see which stock may be the better buy at the moment.
DAL Review
Delta kicked off a much-anticipated earnings season among airline stocks that hopefully shows continued improvement and recovery on their top and bottom lines.
This was the case for Delta, with the company highlighting that consumer demand remains robust and drove strong demand through its fourth quarter of fiscal 2022, which saw operating revenue of $12.3 billion–8% higher than Q4 pre-pandemic levels in 2019.
Delta’s total revenue of $13.43 billion beat expectations by 3% and increased 43% year over year. On the bottom line, earnings ended up topping the Zacks consensus by 15% at $1.48 per share and rebounded 573% YoY.
Image Source: Zacks Investment Research
UAL Preview
Delta’s impressive report is another reason to be optimistic about other airliners set to report later in the month.
United Airlines, in particular, is expected to post EPS of $2.07 compared to -$1.60 in Q4 2021. This is in line with the most accurate estimate with an earnings surprise not expected. Still, Delta’s earnings beat makes the possibility of United topping expectations more plausible. And on the top line, United’s Q4 sales are forecasted to grow 49% YoY to $12.23 billion.
Image Source: Zacks Investment Research
Performance & Momentum
Both Delta and United sport an “A” Style Scores grade for Momentum. With much optimism surrounding consumer demand for travel in 2023, UAL stock is up +34% in the last month to trade near its highs Vs. DALs + 15%. Both stocks have largely outperformed the broader indexes with UAL also topping the Transportation-Airline Markets +15% while DAL is on par with this pace.
Image Source: Zacks Investment Research
However, over the last decade, DAL is now up +181% to beat UAL’s +108% and also top the benchmark. While UAL has lagged behind the S&P 500 its performance has outpaced the Transportation-Airline Markets +33% during this period.
Image Source: Zacks Investment Research
Valuation
After such impressive rallies over the last month, it is important to monitor the valuation of Delta and United Airlines stock.
To that note, Delta sticks out trading at $38 per share and just 7.04X forward earnings which is nicely below the industry average of 12.6X. Shares of Delta trade 77% below their decade high of 30.6X and at a 24% discount to the median of 9.2X.
In comparison, United trades at $51 per share and 7.4X forward earnings, also beneath the industry average. This is well below its absurd decade-long high of 747.2X but slightly above its median of 8.8X.
Image Source: Zacks Investment Research
Guidance & Outlook
Delta stock ended the last trading session down over 3% despite an impressive quarterly report as the company’s first-quarter guidance forecasted EPS between $0.15 - $0.40 a share. This came in below many analysts’ expectations with the Zacks Consensus for Q1 at $0.45 per share.
Image Source: Zacks Investment Research
Year over year, Delta’s earnings are now projected to climb 59% in FY23 at $5.10 per share, based on Zacks estimates. This is on par with Delta’s outlook of EPS between $5-$6 per share. Fiscal 2024 earnings are expected to rise another 29% to $6.57 per share with Delta believing they can achieve EPS of $7 a share. Earnings estimates are slightly up for both FY23 and FY24 over the last 90 days.
Pivoting to United before its Q4 report, full-year fiscal 2022 earnings are now expected at $2.11 per share compared to an adjusted loss of -$13.94 a share in 2021. Fiscal 2023 earnings are expected to rebound another 228% at $6.92 per share. Earnings estimates revisions have largely gone up for both FY22 and FY23 over the last quarter.
Image Source: Zacks Investment Research
Bottom Line
There could continue to be more upside left in these airline stocks, especially when looking at their current valuations. At the moment, United Airlines lands a Zacks Rank #2 (Buy) in correlation with earnings estimate revisions trending much higher for FY23. As for Delta, the stock lands a Zacks Rank #3 (Hold) with earnings estimates slightly higher for FY23 despite the company’s guidance for its first quarter EPS being below many analyst expectations.