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Is DAL Stock a Buy Post Encouraging 2025 Revenue Forecast?

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Last month, Delta Air Lines (DAL - Free Report) management stated in its investor day presentation that 2025 revenues are expected to grow in mid-single digits from the 2024 reported figure. Delta expects to expand capacity by 3-4% in 2025 from 2024.

The company also reiterated its fourth-quarter 2024 outlook. DAL expects adjusted earnings of $1.60-$1.85 per share for the fourth quarter of 2024. The adjusted operating margin in the December quarter is expected to be 11-13%. Management projects fourth-quarter 2024 total revenues (adjusted) to be in the range of $13.9-$14.2 billion, suggesting an increase of 2-4% from the fourth-quarter 2023 actual.

DAL expects adjusted earnings to grow 10% per year over the next three to five years. Operating margin is expected to be in the mid-teens. This Atlanta-based airline operator aims at a balanced capital allocation approach by continuing to pay down debts and reward shareholders through dividends and buybacks.

This encouraging forecast naturally raises the question of whether investors should buy DAL stock currently. Let's delve deeper to answer that question.

Upbeat Air Travel Demand Boosts DAL Stock

The stronger-than-expected recovery of air travel demand following the pandemic has been supporting growth of airline stocks like Delta. While air travel demand is particularly strong on the leisure front, it is heartening to note that business demand has made an impressive comeback. As a reflection of this, managed corporate travel sales were up 7% year over year in third-quarter 2024, with double-digit growth in the tech, media and banking sectors.

The Thanksgiving holiday period is likely to attract substantial traffic with DAL expecting the same to be the busiest ever. The carrier anticipates 6.5 million passengers to fly on its planes between Nov. 22 and Dec. 3. An average of 540,000 passengers are expected to fly each day during the 12-day travel period, marking a 5% year-over-year increase. In the event of this forecast coming true, passenger revenues are likely to be very high in the final quarter of 2024, in turn aiding its overall results.

Falling Oil Price Represents Another Positive for DAL Stock

The southward movement of oil price bodes well for the bottom-line growth of airlines, including DAL. This is because fuel expenses are a significant input cost for the aviation space. Notably, oil prices declined 14% in the July-September period, mainly due to weakening global demand.

China's economy, the world’s largest oil importer, struggled with a slowdown in manufacturing, shrinking for the fifth consecutive month by September. In third-quarter 2024, expenses on aircraft fuel and taxes at DAL decreased 6% year over year to $2.75 billion. Average fuel price per gallon (adjusted) decreased to $2.53 from $2.78 a year ago. Fuel cost per gallon in the fourth quarter of 2024 is projected in the range of $2.2-$2.4. We expect the metric to be $2.37 in the December quarter.

DAL’s Impressive Price Performance

Driven by upbeat air travel and low fuel costs, DAL shares have outperformed its industry and fellow-airline operator American Airlines (AAL - Free Report) over the past three months. Another industry participant United Airlines (UAL - Free Report) has performed even better.

Three-Month Price Comparison

Zacks Investment ResearchImage Source: Zacks Investment Research

DAL Stock’s Attractive Valuation

From a valuation perspective, DAL is trading at a discount compared to the industry. Its forward 12-month price-to-sales, a commonly used multiple for valuing airline stocks, reading is also below its median over the last five years. The company has a Value Score of A.

Zacks Investment ResearchImage Source: Zacks Investment Research

DAL Suffering Due to High Labor Costs

DAL is burdened with rising expenses related to non-fuel unit costs. These costs increased 3% year over year in the first nine months of 2024, driven mainly by salaries and related costs, which increased 11%. The increase was due to higher wages arising from the contract with pilots that was ratified in March 2023.

The rise in non-fuel unit cost or cost per available seat mile (CASM: adjusted) for the September quarter was a very steep 5.7% year over year. The global IT outage in July pushed adjusted CASM higher in the September quarter, thereby hurting the bottom line. Evidently, in the third quarter of 2024, earnings decreased 26.1% on a year-over-year basis, mainly due to high labor costs. Non-fuel unit cost or cost per available seat mile for the December quarter is expected to increase 3% from fourth-quarter 2023 levels.

Earnings per share estimates have been moving south over the past 60 days, mainly due to high labor costs.

Zacks Investment ResearchImage Source: Zacks Investment Research

Conclusion

Undoubtedly, DAL stock is attractively valued, and upbeat passenger volumes and low fuel costs are providing it a boost. However, high costs weigh on its bottom line. The falling estimates for 2025 are not helping matters either. As a result, we do not advise buying this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Instead, investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.


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