Delta Air Lines Appears To Be On A Smooth Course, Says Morgan Stanley

Morgan Stanley analyst Ravi Shanker reiterated an Overweight rating on the shares of Delta Air Lines Inc DAL with a price target of $77.

Delta reported a Q3 FY23 adjusted operating revenue growth of 13% Y/Y to $14.55 billion and operating revenue of $15.49 billion, beating the consensus estimate of $14.54 billion. Adjusted EPS of $2.03 was above the consensus of $1.94.

The strength in premium continued as revenues came in +17% y/y, outpacing main cabin by 5 points, with management noting that domestic paid first class load factors are reaching new heights every month, said the analyst. 

Premium remains robust and Domestic paid load factor in the first class cabins was a record for the company, noted the analyst.

Management expects trends to be consistent with 3Q and said that initial bookings for the peak holiday periods are strong, added the analyst.

International remained the star of the show, achieving record margins across all international entities, with strength expected to continue into the fall, said the analyst.

The analyst believes 4Q guidance is likely more than good enough at $1.05 - $1.30.

The strong brand, premium customer demand, metered growth plans, exposure to corporate/international tailwind, partial fuel hedge from the refinery, controlled cost esp. with maintenance costs pulled forward, all put DAL on a path to $7+ EPS in 2024, noted the analyst.

Unless consumer demand for travel were to suddenly collapse, the analyst believes the market should gravitate toward DAL’s compounding growth story.

Price Action: DAL shares are trading lower by 2.59% at $34.24 on the last check Friday.