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Delta Air Lines, Inc. (DAL) is an Atlanta-based airline company that provides scheduled flights both domestically and internationally. Its services include passenger transport, cargo transport, professional security, training and consultancy, aircraft management, aviation solutions, and repair and overhaul.
The airline also has a refinery segment, Monroe Energy, which provides Delta with 80% of its jet fuel. With a fleet of 1200+ aircraft, Delta serves more than 275 locations in 50 countries. The airline was founded in 1924, and carries a market cap of $25.56 billion.
DAL stock is down 27% from its multi-year high set in May, including a sharp 16% drop over the past month. The airline stock is down more than 2% on a year to date basis, lagging the positive performance of the broader S&P 500 Index ($SPX).
Delta Reports Disappointing Results
Delta Airlines reported its Q2 results in mid-July, and Wall Street wasn’t too impressed with the mixed bag of numbers. The airline company’s revenue of $16.66 billion was better than analysts' consensus $16.25 billion estimate, but its earnings for the quarter came to $2.36 per share - falling short of Wall Street’s $2.37 per share forecast.
The carrier generated free cash flow of $2.7 billion, of which it used $2.1 billion for debt repayment.
Delta also increased its capacity by 8%, which led to a weak unit revenue number. Guidance called for unit revenue to either stay flat or fall 2%, but it slipped 2.6%, which contributed to the stock sliding more than 8% in the 3 days after earnings.
Looking ahead, management predicted earnings of $1.70 to $2.00 per share for the current quarter, indicating an expected year over year decline. Revenue is expected to rise 2% to 4% from last year.
Delta Seeks Compensation from Microsoft and CrowdStrike
Things got worse for Delta on July 19, when it became one of the businesses impacted by a global outage on Microsoft (MSFT) platforms implementing CrowdStrike (CRWD) cybersecurity software. Delta has now turned to Microsoft and CrowdStrike for compensation after the outage led to a 5-day fiasco that caused more than 7,000 flight cancellations - leaving Delta with a financial impact of $500 million, per Delta CEO Ed Bastian.
While speaking to CNBC, Bastian said, “We have to protect our shareholders. We have to protect our customers, our employees, for the damage, not just to the cost of it, but to the brand, the reputational damage.”
However, since other airlines recovered much faster than Delta, the response has led to an investigation by the U.S. Department of Transportation. Delta, which estimates Q3 compensation and refund charges at around $380 million, is also facing a class action lawsuit.
Microsoft and CrowdStrike have both rebuffed Delta's claims, with a lawyer for Microsoft calling the assertions "incomplete, false, misleading, and damaging to Microsoft and its reputation.”
What Do Analysts Say About Delta Stock?
Analysts are still quite optimistic about the airline company, as seen by the unanimous "Strong Buy" rating among all 19 brokerage firms in coverage. The mean price target of $60.59 signifies a potential upside of 54% from current prices.
At 6.36x forward earnings, DAL looks cheap; however, investors looking to build a stake should start small and proceed with caution, given the current uncertainties surrounding the stock.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
