On Tuesday, Jefferies maintained a Buy rating on Delta Air Lines (NYSE:DAL), increasing the share price target to $58 from the previous $55. The firm highlighted Delta's advantageous position due to its premium consumer mix and diversified revenue and cash streams.
Delta Air Lines is recognized for its superior performance as a top-tier operator. The airline's premium customer segment, which yields more than a 10-point higher margin compared to standard fares, is expected to grow from 35% of its revenue in 2023 to 37%. Additionally, the premium seats offering is expected to expand by about one percentage point annually.
The SkyMiles program is another significant contributor to Delta's financial strength, boasting 25 million members who spend five times more than non-members. The partnership with American Express (NYSE:AXP) is particularly lucrative, with expected remuneration exceeding $6.5 billion in 2023 and projected to reach $10 billion before 2028. This partnership alone is estimated to represent a standalone enterprise value of $40 billion.
Delta's TechOps division, which specializes in aircraft maintenance and repair services, is also a key revenue generator. With external sales of $0.8 billion at a mid-to-high-teens margin, TechOps is on track to expand its sales to $2 billion by 2026 and potentially more than $5 billion after 2030. The projected enterprise value of this division is around $10 billion.
The analyst's positive outlook on Delta Air Lines is based on these diversified and growing revenue streams, which are expected to continue enhancing the company's financial profile in the coming years.
InvestingPro Insights
Jefferies' endorsement of Delta Air Lines (NYSE:DAL) is further complemented by current data from InvestingPro, which paints a robust financial picture of the company. Delta's market capitalization stands at a healthy $30.82 billion, and the airline is trading at an attractive earnings multiple, with a P/E ratio of 6.71 and an adjusted P/E ratio for the last twelve months as of Q4 2023 at 7.14. This indicates a company that is potentially undervalued relative to its earnings capacity. Additionally, Delta has demonstrated strong revenue growth of 14.76% over the last twelve months, signaling a solid financial trajectory.
InvestingPro Tips highlight Delta's high shareholder yield and its status as a prominent player in the Passenger Airlines industry. These factors, coupled with a strong return over the last month of 4.99% and a significant six-month price total return of 32.98%, suggest that Delta is maintaining a positive momentum in the market. Furthermore, analysts predict that the company will be profitable this year, which aligns with Jefferies' optimistic assessment.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, which could offer further insights into Delta's financial health and future outlook. To explore these insights and make more informed investment decisions, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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