Is Delta Stock a Buy or Sell After Q2 Earnings?

Delta Air Lines (DAL) stock is down more than 5% in early trading Thursday after the airline company satisfied analysts’ expectations for its second quarter but provided a soft outlook on the third quarter.

In the three months ended June 30, Delta’s operating revenue increased 6.9% year-over-year to $16.7 billion while its revenue per available seat mile decreased 1.2% to 22.3 cents. Its earnings per share (EPS) decreased 11.9% to $2.36 from the year-ago period.

“Thanks to the incredible work of our 100,000 people, Delta is delivering industry-leading operational performance and best-in-class service for our customers,” Delta CEO Ed Bastian said in a statement. “We delivered record June quarter revenue and pre-tax income of $2 billion with a 15% operating margin.”

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The results satisfied analysts’ expectations. According to CNBC, Wall Street was anticipating revenue of $15.45 billion and earnings of $2.36 per share.

However, sentiment turned negative toward Delta after the company provided the outlook for its third quarter, which fell short of analysts’ expectations. Delta anticipates total revenue growth in the range of 2% to 4% and earnings per share in the range of $1.70 to $2.00, which came up short of analysts’ expectations of $2.05 per share.

"For the September quarter, we expect a double-digit operating margin and a pre-tax profit of approximately $1.5 billion,” Bastian said. “With strong first half results and visibility into the second half, we remain confident in our full-year guidance."

For the full year, Delta reiterated its guidance of earnings per share in the range of $6 to $7 and free cash flow of $3 billion to $4 billion.

Is Delta stock a buy, sell or hold?

Wall Street is bullish on the airline stock. According to S&P Global Market Intelligence, the average analyst target price for DAL stock is $60.58, representing implied upside of more than 36% to current levels. Additionally, the consensus recommendation is a Strong Buy.

"Delta is a well-run airline with industry leading operations, consistent pre-tax earnings pre-pandemic, and a focus on staying capacity disciplined,” BofA Securities analyst Andrew Didora said in a July 8 note. 

“DAL's free cash flow potential the next few years (targets >$2B in 2023 and >$4B in 2024) is the most differentiating factor between DAL and other airlines (LUV and UAL). DAL expects to return to more normalized capex of $5-5.5B per year. This spend is similar to 2018-2019 while other airlines are investing at least twice the levels as pre-pandemic."

BofA Securities rates DAL stock a Buy.

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