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Here's Why You Should Retain Delta Air Lines (DAL) Stock Now
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Delta Air Lines (DAL - Free Report) benefits from robust air travel demand, bolstering its financial performance. The move to reinstate quarterly dividends emphasizes its shareholder-friendly approach. However, high fuel and labor costs, coupled with technological glitches, pose major challenges.
Factors Favoring DAL
Improved domestic air travel demand is bolstering Delta Air Lines. Driven by strong passenger revenues, DAL reported better-than-expected earnings and revenues in the fourth quarter of 2023. Management forecasts a 3-6% adjusted revenue increase in the first quarter of 2024, up 3.7% from the first-quarter 2022 actuals.
DAL's fourth-quarter 2023 liquidity was robust, with cash of $3,868 million surpassing its debt of $2,983 million, ensuring ample funds for obligations and highlighting commendable debt repayment efforts.
DAL's management resumed quarterly dividends last year after a COVID-19-induced pause, which highlights its shareholder-friendly stance. In June 2023, DAL's board approved a 10 cents per share dividend, indicating progress on its three-year financial plan, including more than $10 billion in debt repayment.
Delta Air Lines' commendable fleet modernization efforts include a deal with Airbus for 20 A350-1000 jets, with deliveries beginning in 2026, along with options for an additional 20 aircraft. Additionally, the agreement with Rolls Royce encompasses servicing for its Trent XWB-97 engines.
Key Risks
Rising fuel costs are hurting the airline's bottom line. This trend is driven by the extension of production cuts by Saudi Arabia and Russia until the end of 2023. In the fourth quarter of 2023, average fuel prices rose by 7.9% to $3 per gallon. Expectations for the first quarter of 2024 place fuel prices between $2.50 and $2.70 per gallon, with our estimate at $2.51.
DAL also faces rising non-fuel unit costs, up 1.1% year over year in the fourth quarter of 2023. Salaries and related costs surged by 23% to $3,769 million due to increased wages from a ratified pilot contract in March 2023. Expectations for the first quarter of 2024 show a 3% increase in non-fuel unit costs from the first-quarter 2023 levels.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 9% upward over the past 90 days. The company has an expected earnings growth rate of 6.5% for 2024. Shares of GATX have rallied 24.2% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 261% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.
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Here's Why You Should Retain Delta Air Lines (DAL) Stock Now
Delta Air Lines (DAL - Free Report) benefits from robust air travel demand, bolstering its financial performance. The move to reinstate quarterly dividends emphasizes its shareholder-friendly approach. However, high fuel and labor costs, coupled with technological glitches, pose major challenges.
Factors Favoring DAL
Improved domestic air travel demand is bolstering Delta Air Lines. Driven by strong passenger revenues, DAL reported better-than-expected earnings and revenues in the fourth quarter of 2023. Management forecasts a 3-6% adjusted revenue increase in the first quarter of 2024, up 3.7% from the first-quarter 2022 actuals.
DAL's fourth-quarter 2023 liquidity was robust, with cash of $3,868 million surpassing its debt of $2,983 million, ensuring ample funds for obligations and highlighting commendable debt repayment efforts.
DAL's management resumed quarterly dividends last year after a COVID-19-induced pause, which highlights its shareholder-friendly stance. In June 2023, DAL's board approved a 10 cents per share dividend, indicating progress on its three-year financial plan, including more than $10 billion in debt repayment.
Delta Air Lines' commendable fleet modernization efforts include a deal with Airbus for 20 A350-1000 jets, with deliveries beginning in 2026, along with options for an additional 20 aircraft. Additionally, the agreement with Rolls Royce encompasses servicing for its Trent XWB-97 engines.
Key Risks
Rising fuel costs are hurting the airline's bottom line. This trend is driven by the extension of production cuts by Saudi Arabia and Russia until the end of 2023. In the fourth quarter of 2023, average fuel prices rose by 7.9% to $3 per gallon. Expectations for the first quarter of 2024 place fuel prices between $2.50 and $2.70 per gallon, with our estimate at $2.51.
DAL also faces rising non-fuel unit costs, up 1.1% year over year in the fourth quarter of 2023. Salaries and related costs surged by 23% to $3,769 million due to increased wages from a ratified pilot contract in March 2023. Expectations for the first quarter of 2024 show a 3% increase in non-fuel unit costs from the first-quarter 2023 levels.
Zacks Rank
DAL currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the broader Transportation sector may consider stocks like GATX Corporations (GATX - Free Report) and SkyWest (SKYW - Free Report) . Each stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 9% upward over the past 90 days. The company has an expected earnings growth rate of 6.5% for 2024. Shares of GATX have rallied 24.2% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 261% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.