On Thursday, Deutsche Bank expressed increasing confidence in Delta Air Lines’ (NYSE:) earnings potential, leading to an increased share price target. The target was set at $60.00, up from $50.00 previously, while the company maintains a Buy rating on the stock.
Deutsche Bank’s optimism comes after a review of Delta’s performance in the March quarter and the airline’s forecasts for the June quarter. The analyst claims that these factors strengthen belief in Delta’s ability to achieve the high end of its forecast earnings per share (EPS) for 2024. Consequently, the analyst has reiterated the forecast for full-year EPS of $7.00, above the consensus EPS of $6.46, according to Bloomberg.
The new price target of $60 is based on a valuation approach that is approximately five times enterprise value to EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring or rental costs) relative to Delta’s 2024 and 2025 EBITDAR estimates This valuation metric is within the airline’s historical trading range, which is typically between 5 and 7 times EV/EBITDAR.
The analyst goes on to say that the $60 price target implies a price-to-earnings (P/E) ratio of approximately 8.5 times the 2024 EPS estimate and approximately 8 times the 2025 estimate. This is considered a modest trading range of 10 to 12 times for legacy carriers compared to the historical mid-cycle. The rating reflects a positive view of Delta’s valuation, given the company’s solid earnings record over the past two years and its forward-looking financial outlook.
Investing Pro Insights
Deutsche Bank’s raised price target for Delta Air Lines (NYSE:DAL) underscores the airline’s robust financial performance and promising outlook. In addition to this perspective, InvestingPro The data paints a compelling picture of Delta’s market position. With a market capitalization of $29.55 billion and an attractive P/E ratio of 6.08, the company is characterized by its financial stability. The P/E ratio has adjusted slightly to 6.85 over the last twelve months as of the fourth quarter of 2023, which still indicates a potentially undervalued stock compared to the industry average.
Delta’s revenue growth has been solid, with an increase of 14.76% over the last twelve months (as of Q4 2023) and a gross profit margin of 22.4%, showing the company’s efficiency in generating earnings relative to its sales . The airline’s operational strength is also demonstrated by an operating profit margin of 10.49% in the same period.
Given these metrics, InvestingPro The picks highlight Delta’s high shareholder returns and its status as a leading player in the passenger airline industry. Although six analysts have revised down their earnings for the coming period, the company is expected to continue to be profitable this year and has been so over the last twelve months. Additionally, Delta has seen a strong price increase over the past six months with a return of 30.97%, underscoring investors’ confidence in its performance.
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