Delta Air Lines (DAL, Financial) presents an excellent investment opportunity due to its strong results and bright future prospects. During 2024, it achieved its record adjusted revenue results alongside its capacity to generate profit. Delta's main business priority is to deliver top-tier service to customers. Its premium services generate most of its growth and make it stand out among other airlines.
Delta expects to generate better-than-expected earnings and revenue in 2025 while producing more than $4 billion in free cash flow. The company maintains a strong partnership with American Express Co. (AXP, Financial) to earn extra profits for its business.
Most investors now see the stock as great value. The stock's modest and low valuation compared to rivals makes it an ideal moment to invest in Delta for both discounted prices and potent future growth prospects.
Delta Air Lines achieves solid revenue and eyes 2025 growth
First, lets talk about Delta's amazing fourth-quarter and full-year performance. Its outstanding financial results were supported by new revenue records and top-tier operational delivery. During the full year, Delta's operating revenue increased by 6% to $61.6 billion. The adjusted figures reveal that Delta earned $57 billion in revenues, which grew by 4.3% from the previous year.
In the fourth-quarter itself, Delta maintained its successful path by generating $15.6 billion in revenue alongside an adjusted pre-tax margin of 10.8%. The company achieved better results than expected with adjusted revenue rising 5.7% to $14.4 billion during the reporting period. Strong consumer and business travel patterns drove Delta to achieve four of its best quarterly revenue performances ever during November and December. It achieved a 12% operating profit margin that grew 2.3 percentage points YOY thanks to improved efficiency and expanded investments in employee wages and customer satisfaction.
Moreover, Delta achieved the top Q4 performance with its bottom-line results showing adjusted EPS of $1.85 which grew 45% from the previous year. It is one of the most profitable December quarters in Delta's history. The American Express partnership with Delta also delivered a strong 14% rise in remuneration to almost $2 billion.
Looking forward, Delta expects earnings to grow by greater than 10% to $7.35 per share in 2025 and over $4 billion in free cash flow in 2024. As demand grows, particularly in international premium travel, Delta hopes to benefit from growing demand by following a balanced growth plan and improving its customer service. These financial plans are strengthening Delta's market position and at the same time promising good returns to shareholders.
Delta's premium revenue strategy
Delta Air Lines demonstrates its premium services that positions the company ahead of other airlines. In 2024, Delta achieved its record sales of $57 billion by earning 8% more premium revenue YOY which exceeded the growth rate of its main cabin services. By this strategy, Delta successfully turned free flight upgrades into a main source of premium revenue.
Notably, Delta makes 15% more profit from premium cabins than from main cabin services and retains a whopping 85% of its loyal premium travelers. Delta expands its premium services by building 55 Sky Clubs with 700,000 square feet of lounge space to give better service to its customers.
Cost efficiency and technology boost margin expansion
During 2025, Delta will achieve notable margin improvements because of different market conditions. First, estimates are that fuel costs will fall, with Q4 2024 fuel prices down 22% YOY. Additionally, Delta will save more through its updated aircraft and better fuel efficiency improvements. On top of that, Delta keeps its non-fuel unit costs well-managed, with significant investments in infrastructure and employee compensation.
In addition, normalized costs should be helped by improved maintenance efficiency and airport facility investment leverage. Delta uses tech investments to increase operational effectiveness by recently introducing Delta Concierge which leverages generative AI. Through coordinated initiatives, Delta moves toward its mid-teens margin target and establishes a path to robust financial results through the economic cycles.
Network optimization and international expansion
The way Delta optimizes its network plays a big role in how it plans to grow during 2025. Its core hubs, specifically in Atlanta, have returned to their normal pre-pandemic levels. The company is expanding its domestic network in 2025 by focusing 80% of capacity growth on its most profitable core hub airports. In addition, Delta's international operations stayed healthy, particularly its transatlantic flights, which gained 6% more revenue in Q4 2024 during a time when customer demand usually dips. After acquiring Asiana from Korean Air the company sees new possibilities to improve its Pacific route network. Delta's current market advantages will enable it to develop its successful routes while increasing profits over the next few years.
A compelling undervaluation opportunity
Delta Air Lines: A High-Flying Opportunity with Undervalued Potential
Source: Author generated based on historical data
At the current price levels, valuation metrics show that Delta trades at lower multiples than the sector median while operating better than ever with financial strength improving.
Take Delta's forward P/E ratio of 8.63 times, which shows a big 59.38% discount to the sector median of 21.24, making the stock look appealing value-wise. Similarly, the stock market seems to be missing out on how profitable Delta could be, since its EV/EBITDA ratio is only 6.07 times, while the industry average is 12.44.
Last but not least, the stock market shows investors an outstanding entry point because Delta's forward price-to-sales multiple of 0.67 times sits 58.65% below the sector median of 1.63. This valuation shows limited market confidence in Delta's expansion potential, which may be overly conservative, as the company stands strong in its core areas.
Comparison with peers
Among its peers, United Airlines Holding (UAL, Financial) and Ryanair Holdings PLC (RYAAY, Financial), Delta Air Lines emerges as the most valuable airline company. Delta's valuation looks better than United Airlines and Ryanair because its P/E ratio is lower than their 11.26 times and 14.04 times respectively. Similarly, Delta maintains more affordable pricing than UAL and RYAAY because its forward EV/EBITDA ratio sits below their 6.68 times and 6.82 times.
Coming towards forward P/S ratios, Ryanair and United Airlines display higher P/S ratios of 1.40 times and 0.96 times than Delta's ratio of 0.67 times. The data shows that Delta produces higher revenue from operations than UAL and Ryanair. Delta keeps its asset values in proper balance because its price-to-book ratio stands at 2.77 times while being lower than UAL's 3.09 times but higher than RYAAY's 2.37 times. Overall, Delta provides investors with an attractive entry point into the market because it is at discounted levels than its industry rivals.
Delta Air Lines: A High-Flying Opportunity with Undervalued Potential
Source: Author generated based on historical data
Delta Air Lines: A strong case for upside potential
Delta Air Lines expects to generate solid earnings growth from 2025 through 2027 as per its EPS forecasts, which predict $7.61 per share for 2025 rising to $9.32 by 2027. The company expects to grow more than 10% YOY through 2027. Meanwhile, Delta's revenue continues to rise steadily with analysts predicting $62.35 billion in 2025, which will gradually grow to $67.56 billion by 2027. The predicted results confirm Delta's fast return to business operations and its potential to gain market value.
In line with this, Delta shows a strong investment case because its valuation metrics are offering significant discounts compared to industry peers. I give Delta a 12-month price target of $95, which represents a 45% upside from its present market value of $65.80.
This price target comes from Delta's undervalued P/E ratio of 8.63 times, which I expect to normalize to 12.5 while remaining below the sector median. The stock holds potential for growth with an estimated forward EPS of $7.63 and strong operational recovery. Delta's stock also saw an amazing 77% price increase over the past year and a modest 13.4% over the past half-decade. This momentum and its attractive valuation show investors that further gains are still achievable as the market better understands Delta's improving fundamentals.
Delta Air Lines: A High-Flying Opportunity with Undervalued Potential
Wall Street analysts also expect significant growth from Delta with its stock price target prediction of $79.93, offering an amazing 17% upside. Even more bullish is their higher estimate that puts the stock up 52% from current levels, reaching $100.
Delta Air Lines: A High-Flying Opportunity with Undervalued Potential
Source: Wall St. Analysts' Rating (Seeking Alpha)
Risks to my thesis
The main risk for Delta comes from its high labor costs. The airline industry is still unionized which makes wage inflation hard to keep under control. In 2024, Delta invested $1.4 billion to share profits with employees through their profit-sharing program, which, although rewarding for the employees, reduces their profit margins.
Second is the volatility of fuel prices. High fuel expenses make up a significant part of Delta's operations and rising oil prices would damage their profit levels. Sure, its fuel-efficient technologies and risk protection systems help, but it needs fuel costs to remain stable in order to maintain healthy margins.
Finally, Delta's international expansion creates geopolitical challenges that need attention. The Pacific market has growth potential yet increasing tensions between China and South Korea may impact future success in this region. Any economic or political problems in Europe directly impact Delta's flying schedule to that region. Despite strong growth potential, these business challenges should stay on investors' watch lists.
Your takeaway
Overall, Delta Air Lines looks like a reliable and pretty solid investment right now. It continues to deliver strong results from its premium offerings along with successful business expansion. Its proven strong fundamentals, including fast revenue growth and large profit margins, give us confidence in its future success. Plus, the company is attractively undervalued, making this an excellent starting point for investors who want to see upside potential.
That said, we need to consider the potential risks. Rising labor costs pose a significant challenge, but they're less of a problem for Delta because they offer premium services, run efficiently, and maintain good finances. Despite minor challenges ahead Delta's business plan and future growth path create a strong investment appeal. Also, the analysts' target prices show that investors see great potential in Delta's growth path with strong expected returns ahead.
