Earlier this week, Delta Air Lines ( NYSE: DAL ) set the tone for the airline industry's quarterly reporting season. In keeping with the sector's murky outlook, DAL released a mixed report, triggering an uncertain reaction among investors.
DAL and its competitors are hoping to profit from a surge in post-pandemic demand. However, this consumer interest is taking place against a backdrop of higher fuel prices, staffing shortages and the possibility of a recession in the near future. Given these crosscurrents, does DAL represent a buying opportunity at these levels?
Return of Demand Vs. Macro Headwinds
As the COVID outbreak shut down most travel during 2020, shares of DAL and its peers suffered a massive selloff. DAL reached a level below $20 in the middle of that year but then began a recovery as restrictions were slowly removed. The stock climbed during the second half of 2020 and into 2021, topping out at a level above $50 in March.
Since then, the stock has hit pockets of severe turbulence. While consumer demand has returned, 2022 has seen a jump in fuel prices and a persistent staffing shortage, which has forced DAL to announce a series of high-profile flight cancellations. All told, DAL has fallen about 24% in 2022, trading at around $30 in Friday's intraday action.
This decline is largely middle of the pack for the sector. For instance, American ( AAL ) has shown a similar retreat of around 23%. Meanwhile, JetBlue ( JBLU ) has seen a significantly steeper slide in 2022 than most of its competitors, plunging by 45% amid a bidding war from Spirit ( SAVE ).
Elsewhere, United ( UAL ) and Southwest ( LUV ) have held up better than most of their peers, although both have also posted notable 2022 retreats. LUV has fallen about 10%, while UAL has dropped around 19%.
On the earnings front, DAL posted Q2 results earlier this week. The company delivered Q2 non-GAAP EPS of $1.44, which missed estimates by $0.28. However, the airline beat projections on its top line, posting revenues of $13.8B -- about $400M above consensus. The revenue figure was up nearly 94% from the previous year.
In the wake of the report, Delta CEO Ed Bastian commented on the bumpy return to normal operations the company has experienced lately. He stated that the firm's mixed earnings report came as the airline industry "stretched itself" to take back as much demand as possible coming out of the pandemic, creating a "fair bit of operational stress."
Meanwhile, fuel costs continue to be a significant headwind for the carrier. The average fuel price per gallon has climbed 80% since 2019. Oil prices continue to remain elevated but have now dipped back below $100/bbl.
Is DAL Buy?
Analysts on Wall Street overwhelmingly hold a bullish opinion on Delta ( DAL ), with most betting the company will resolve its operational issues to capture rising demand. Of the 20 analysts surveyed by Seeking Alpha, 13 maintain Strong Buy ratings, while another five have issued a Buy opinion.
Two analysts see the stock as a Hold, while none currently rate it as a Sell or Strong Sell.
Seeking Alpha’s Quant Ratings largely agree with the Street consensus, with the system labeling DAL as a Buy. DAL receives an A- for profitability and a B for growth. The Quant Ratings grade the stock as a C on valuation and a C- for momentum.
See a breakdown below:
Along with Wall Street and Seeking Alpha’s Quant ratings, Seeking Alpha contributor Dhierin Bechai outlines a bullish case stating that Delta Air Lines. Bechai said DAL, like any airline, faces a tough environment for staffing and cost control but is in a better position than others . At the same time, contributor Mark Schiavo lists DAL as a hold in the wake of its second quarter earnings.
For further details see:
Delta's earnings showed strong demand amid serious operational headwinds. Is it a buy?