World Stock Watch

Unlocking the Potential of Delta Air Lines

After a remarkable 71% surge in the past year, investors may be wondering if Delta Air Lines (NYSE: DAL) has reached its peak. However, with a slew of analyst price target upgrades, it’s clear that Wall Street analysts believe there’s still room for growth. Here’s why Delta Air Lines is an attractive addition to any long-term investor’s portfolio.

A Valuation Disconnect

Delta Air Lines boasts an impressive valuation profile, with metrics that suggest it’s significantly undervalued. The table below highlights some key metrics:

| Metric | 2024 | 2025 (Estimated) |
| — | — | — |
| Earnings per share | $6.16 | $7.63* |
| Price-to-earnings ratio | 10.7 | 8.7 |
| Free cash flow | $3.4 billion | $3.8 billion* |
| Price-to-free-cash-flow ratio | 12.4 | 11.1 |

Why the Market is Underestimating Delta

The airline industry’s cyclical nature and high debt levels have led to concerns about Delta’s financial situation. However, these concerns may be overblown. With total debt and finance lease obligations of $16.2 billion, Delta has made significant progress in reducing its debt burden.

Why Delta is an Outstanding Value Stock

There are several reasons why Delta stands out as an excellent value stock:

• Strong Trading Momentum: The return of corporate travelers, growth in transatlantic travel, and premium cabin offerings have contributed to Delta’s excellent trading momentum.
• Disciplined Industry Behavior: Airlines are cutting unnecessary capacity, leading to a return of ticket pricing power. Delta’s revenue growth is expected to outpace its capacity growth in 2025.
• Loyalty Programs and Co-Branded Credit Cards: Delta’s highly successful SkyMiles loyalty program and co-branded credit cards with American Express generate significant revenue. In 2024, Delta received $7.4 billion in remuneration from American Express, exceeding expectations.
• Cash Flow Generation and Debt Reduction: Delta’s cash flow generation has led to significant debt reduction, with an adjusted debt-to-EBITDAR ratio of 2.6. Management aims to reduce this ratio to 2 or less by the end of the year.

A Compelling Investment Opportunity

While there’s no guarantee that the travel market won’t slow down in 2025, Delta’s current trading momentum, improving TRASM, and debt metrics make it an attractive investment opportunity. With its focus on premium travelers, loyalty programs, and co-branded credit cards, Delta is well-positioned for long-term growth.