Why Delta Air Lines Could Soar in 2024

delta airlines (NYSE:DAL) has soared to a 23% return in 2023, and could see even higher upside in 2024 thanks to a travel-friendly market and still affordable prices.

I’m not trying to overstate the analogy, but the fact that the dark skies surrounding airlines and the travel industry have cleared since the pandemic hit last year, and should clear again this year, bodes well for Delta stock. This is why it still remains a solid buy.

Increased Travel Demand Drives Record Revenues

Delta currently trades around $39 per share, and solid profits in 2023 have helped offset some of the pain of the past three years. The stock price fell further each year in 2020, 2021, and 2022, and the stock price has fallen by about 33% since the beginning of 2020. But Delta could return to pre-pandemic levels in 2024, a year expected to be a good one for the travel industry.

In the fiscal third quarter, Delta reported revenue of $15.5 billion, up 11% year-over-year, and net income rose 59% to $1.1 billion. The airline’s revenue saw a 35% year-on-year increase in international passenger revenue, while domestic flights recorded a 6% revenue increase.

For the first nine months of 2023, Delta’s revenue increased 18% year-over-year to $43.8 billion, with net income of $2.6 billion, up from $489 million a year ago.

Higher travel demand, lower fuel costs and cost per available seat mile allowed Delta to improve operating margins from 10.8% to 12.4% in the third quarter of 2022.

Delta’s fourth-quarter results won’t be released until later this month, but the company expects revenue to increase 9% to 12% for the quarter and 20% for fiscal 2023. It is also expected to release guidance for 2024. , which should be positive.

The International Air Transport Association (IATA) projects record industry sales of $964 billion in 2023, up 7.6% from 2023. About 40.1 million flights are expected to be available in 2024, exceeding the total number of flights in 2019 (38.9 million) and 2023. (36.8 million).

Due to limited supply and high demand, ridership is expected to rise again from 82% in 2023 to 2019 levels of 82.6%. As a result, an increase of approximately 2% is expected. Passenger yield compared to 2023.

These factors, along with expected lower cost growth, are expected to result in industry operating income of $49.3 billion and net income of $25.7 billion. These totals represent an increase of 21% and 11% respectively compared to the 2023 totals.

“Considering the major losses of recent years, the projected net profit of $25.7 billion in 2024 is a tribute to the resilience of the aviation industry. People love to travel, and this has helped airlines restore pre-pandemic levels of connectivity. The recovery was surprisingly fast. However, the pandemic appears to have cost the aviation industry about four years of growth,” said Willie Walsh, IATA Director-General.

Delta is positioned for growth

As one of America’s four largest airlines, Delta should be able to capitalize on this favorable trend.

In addition to its strong earnings potential, Delta has been effective in reducing its debt load, which has ballooned since the pandemic. In the third quarter, the airline reduced its net debt to $20 billion from $22 billion a year earlier. With improved financials and expected free cash flow of $2 billion at the end of fiscal 2024, Delta should be able to further execute on its debt reduction plans, but this remains to be seen.

Despite strong returns in 2023, Delta remains an excellent value with more room to run given how much it has fallen over the past three years. With a forward price-to-earnings ratio of less than 6x, the valuation metric is very low as it trades at just 7x earnings. It’s also cheap, with a P/E to growth ratio of just 0.21. Compared to long-term growth potential.

The consensus among analysts is that Delta Air Lines is a buy, and I couldn’t agree more. The median price target for the next 12 months is $50 per share, which would represent a 27% increase from the current share price, so it looks like a solid buy at the moment.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.