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More Near-Term Runway? By TipRanks


© Reuters. Delta Stock: More Near-Term Runway?

Delta Airlines stock (NYSE:) is moving higher. There is hope for a COVID-19 total recovery. After months of being slowed down by the same virus variant as this legacy airline, that’s what happened. Does this mean it’s time to buy?

It depends. In the coming months, despite recent worries that the Delta variant of COVID-19 would bring the “reopening” to a halt, we could see this latest outbreak cool. Recent developments, such as the COVID-19 oral treatment from Merck (MRK) that’s started to make headlines, may mean the “old normal” will return sooner than expected.

Yet, while that bodes well for this carrier’s return to profitability, said turnaround may not happen fast enough to convince investors to bid it higher in the near-term. The stock is reasonably priced in comparison to the 2022 results. However, it’s unlikely that investors will price Delta stock significantly higher than its current price. The company’s 2022 results will be clear, but it is unlikely that they will price Delta stock significantly higher than today.

Couple this with the risk that current optimism about the pandemic’s end reverses back again during the fall and winter months, and Delta shares do not look that appealing after their recent pop. In short, this is what I think makes me bearish. TipRanks shows Delta stock charts.

DAL is seeing optimism grow again

Merck News, as well as developments such a falling COVID-19 infected in the United States has helped to offset the uncertainties that came back a few month ago regarding travel stocks.

Moreover, this isn’t the only reason why sentiment may be shifting back to positive for DAL stock. This is a good thing. Deutsche Bank Michael Linenberg (DE) an analyst recently noted that Delta could be ready for catch-up after falling behind other airline stocks.

In his view, “new money” investors are more likely to buy Delta stock, rather than other plays. That’s mostly due to the perception that it’s one of the highest-quality names in the sector. With this, Linenberg considers it a “short-term catalyst call buy,” meaning it could see strong performance in the coming months.

However, Delta’s earnings recovery, due to a rebound in business and international travel demand, is only starting to take shape. Investors should be cautious until the 2022-2023 projections are more solid. There are many things that can still derail this recovery. The upside for the near future may not be as great.

It’s not as cheap as you think!

It’s understandable why some may see DAL stock as a steal at today’s prices. That’s mostly because it’s more reasonably priced compared to its peers, American Airlines (NASDAQ:) and United Airlines (UAL). It trades at around 10.9x the expected earnings in 2022. That’s a sharp discount to the forward price-to-earnings, or P/E, ratios of American (28.1x) and United (14.1x).

The forward P/E of Delta looks quite cheap relative to its historical value. However, when compared to this stock’s historical value (high single-digits), Delta’s multiple is a bit stretched. Even when you compare its current valuation to analysts’ projections for 2023, this is the truth.

Consensus calls for an earnings per share of $6.82 in 2023. The result would equal $53.37 per shares, or 17.3% more upside than the current price. While this might seem to offer a substantial potential profit, there is a risk that pandemic optimism will turn out to be wrong.

This discount of its expected results, which is almost two years away, seems to be justified. 

The DAL Stock: What analysts are saying

TipRanks rates DAL stock as a Moderate Buy. It has received 16 analysts ratings. 9 of them rate it as a Buy while 7 rate it as a Hold and 0 rate it as a Sell.

As for price targets, the average Delta price target is $55.85 per share, implying around 23.07% in upside from today’s prices. Price targets for analysts can range anywhere from $45 per Share to $67 Per Share.

Delta Airlines Stock Could Seek a Bumpy Ride

According to recent analyst comments, Delta Airlines may be poised for growth in the months ahead.

But it’s important to note that this pandemic appeared to have been priced in into the shares. The pandemic has continued to make it difficult for travel recoveries, even with recent optimism.

DAL stocks may now be rebounding. This carrier may experience an upswing, but it is possible that the rebound will not last.

Disclosure: Thomas Niel didn’t hold any positions in the securities listed in this article at the time it was published.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.