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Why You Should Retain Delta Air (DAL) Stock in Portfolio Now

Delta Air Lines, Inc. (DAL) is benefiting from its strong liquidity position and the buoyant air travel demand scenario. However, escalating fuel cost is worrisome.

Factors Favoring DAL

Driven by buoyant demand, Delta Air generated a double-digit operating margin in the second, third and fourth quarters of 2022. In the December quarter, adjusted operating margin was 10.9%

The buoyant air-travel demand scenario is also evident from the fact that total operating revenues increased 8% in 2022 from 2019 (pre-coronavirus) actuals. Given this buoyant air-travel demand, Delta Air expects total revenues (adjusted) for 2023 to increase in the 15-20% range on a year-over-year basis.

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Delta Air’s liquidity position is encouraging. The airline ended 2022 with cash and cash equivalents of $6,534 million, much higher than the current maturities of debt and financial lease of $2,534 million. This implies that the company has sufficient cash to meet its current debt obligations. DAL's efforts to repay its debts are encouraging too.

Key Risk

Escalating fuel costs pose a threat to Delta Air’s bottom line. Oil price is moving north primarily because of supply concerns due to Russia's invasion of Ukraine. In fourth-quarter 2022, average fuel price per gallon (adjusted) increased 61% from fourth-quarter 2019 actuals to $3.20. Management expects fuel price per gallon in the $3.05-$3.25 range in the March quarter.

Zacks Rank & Key Picks

Delta Air currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL) and United Airlines (UAL), both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Airlines is also being aided by the improved air travel demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%. For first-quarter 2023, AAL’s earnings are expected to register 100.4% growth on a year-over-year basis. For 2023, the company’s earnings are expected to grow 332% on a year-over-year basis.

The Zacks Consensus Estimate for AAL’s full-year 2023 earnings are expected to surge 332% year over year.

United Airlines is seeing steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, UAL was profitable in the fourth quarter of 2022. The fourth quarter was the third consecutive profitable quarter at UAL.

Driven by solid demand, management expects total revenue per available seat mile to grow 25% year over year for the first quarter of 2023. Total revenues are anticipated to grow 50% year over year. The Zacks Consensus Estimate for UAL’s full-year 2023 earnings are expected to surge 227% year over year.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

American Airlines Group Inc. (AAL) : Free Stock Analysis Report

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