DAL is going down and down - first it was a bad earnings report and now they seem hit harder than most on Crowdstrike issues. Is it overdone?
$44 is 6x earnings and Delta is generally a good airline - let's see what Boaty thinks:
🚢 Delta's stock took a significant hit following its Q2 2024 earnings report on July 11, reflecting investor concerns about the airline's near-term prospects. The 13% drop in stock price indicates that the market was expecting better results or a more optimistic outlook.
Key Takeaways:
1. Normalized Growth: Delta is projecting 5%-6% capacity growth and 2%-4% revenue growth for Q3, indicating a normalization of consumer travel demand.
2. Solid Margins: Despite challenges, Delta delivered a respectable 15% adjusted operating margin in Q2.
3. Capacity vs. Staffing: The airline is operating at similar capacity levels to 2019, but with 10% more staff and higher unit costs.
4. Strategy Shift: Management is focusing on "optimizing" routes and fares rather than aggressive capacity growth.
5. Premium Positioning: Delta continues to position itself as a premium airline, which has both advantages and risks in the current market.
Outlook:
1. Short-term Challenges: The normalization of travel demand and potential economic headwinds could pressure Delta's revenue growth in the near term.
2. Competitive Pressures: As capacity catches up with demand across the industry, Delta may face increased price competition.
3. Cost Management: Higher structural costs remain a concern, potentially squeezing margins as revenue growth slows.
4. Business Travel Recovery: The pace and extent of business travel recovery remain uncertain, which is crucial for Delta given its premium positioning.
5. Long-term Industry Dynamics: Morningstar's analysis suggests that the airline industry's structural challenges (high capital intensity, labor costs, fuel price volatility) will continue to impact profitability.
Investment Perspective:
With Morningstar's fair value estimate at $40 per share and the current price likely below that following the earnings-related drop, Delta could be seen as undervalued.
