Delta Air Lines (NYSE: DAL) stock flew higher by 13.2% in March, according to data provided by S&P Global Market Intelligence. The move comes after management updated first-quarter trading, and Wall Street analysts upgraded the stock with aggressive price targets.
Delta Air Lines expects a strong first quarter
The first-quarter update came up at the J.P. Morgan Industrial Conference in mid-March and an associated Securities and Exchange Commission (SEC) filing. In the presentation and the filing, management said it expects first-quarter revenue growth to be in the top half of the 3%-6% guidance range given on the fourth-quarter earnings call in mid-January.
However, the quarter wasn't free of turbulence, as CEO Ed Bastian noted during the presentation that fuel prices were about $0.15 per gallon higher than when management gave guidance. When all is said and done, Delta still expects to deliver earnings per share in the range of $0.25 to $0.50 for the first quarter.
What it means to investors
The news is a net positive. After all, investors can see where market fuel prices are, but they can't be sure of Delta's revenue and bookings growth. The news on the latter is excellent going into the crucial summer season. Bastian disclosed that Delta had had "nine of the top ten sales days in our history, all within the last ten weeks."
In addition, he noted that Delta's return on invested capital was 13.5% in 2023, significantly above its weighted average cost of capital of 8%. While this may sound like a minor financial detail, it's actually a big deal in an industry that's historically struggled to cover its cost of capital.
Image source: Getty Images.
Analyst upgrades
The update gave analysts confidence to upgrade the stock, with BofA recently raising its target price to $53 from $50, and a Morgan Stanleyanalyst raising the company's stock price target to $85 while maintaining an overweight rating on the stock. At the time of writing, Delta's stock price is slightly less than $46.
Investors are warming to Delta's investment proposition due to its sales momentum in 2024, its increasing focus on the premium customer (Delta's average customer has average household earnings of above $100,000), its highly successful SkyMiles loyalty program, and its potential to grow remuneration from Delta American Express credit cards. I believe it's a compelling mix, and the stock remains the pick of the airline sector.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
