Delta Airlines Is Flying Higher On Upbeat Guidance

Key Points

• Delta Airlines raised guidance for Q2, and the market gained 5%. 
• Structural tailwinds are supporting the business and the outlook for 2024. 
• The company reinstated the dividend. 

Delta Airlines NYSE: DAL share price struggled to gain traction until just a few weeks ago, but it is gaining momentum now. The fear of economic headwinds offset the underlying strength in travel demand and left the market near the bottom of the post-COVID trading range. Today's takeaway is that pent-up demand is yet to be sated, and the headwinds, which are still present, aren’t blowing as strongly as feared. This allowed Delta to reinstate the dividend payment and issued favorable guidance that points to growth and improving profitability as the year progresses. 

Delta Reinstates Dividend; Issues Solid Guidance

The dividend was reinstated at $0.10 quarterly or $0.40 annualized, less than 25% of the previous payment. This isn’t as good as it could have been, but the company has been using the free cash flow to pay down debt, which should also continue. With the growth in the forecast, debt in decline, and the dividend back in the picture, the next step is dividend growth. That should come next year at the end of FQ2, but there is a possibility Delta will grow the distribution before then. 

Regarding the guidance, Delta Airlines pre-released guidance for FQ2, F2023, and F2024 ahead of its scheduled investor day event. The company expects Q2 revenue growth near 17.5%, with EPS outpacing the consensus at the low end of the range. This is compounded by an expectation that the FY2023 EPS will come in at the projected range's top-end and outpace the consensus.

Strength is expected to continue in 2024 with adjusted EPS of at least $7.00 compared to the $7.12 Marketbeat.com consensus figure, and this may be cautious. The company referred to a constructive industry backdrop and structural tailwinds as business drivers, including multi-year supply constraints and regaining reliability ratings. Delta, the US's 3rd largest air carrier, could gain market share in this environment.  

The Analysts Provide Lift For Delta Airlines 

The analysts have been lifting their price targets and rating for most of the year, and that trend continues after the guidance release. Marketbeat picked up 1 revision immediately after the release, and more are sure to come, including a price target hike to $50. That’s consistent with the broad consensus of $50.50, trending higher compared to last month and last quarter.

Assuming the company can perform as expected, this trend should continue. Delta reports in mid-July, so the Q2 guidance is probably firm. The following catalysts could come with that report if the company can add color to the full-year outlook; if not, we’ll have to wait until later in the year. 

Institutional activity in the stock suggests the upward price trend will continue, if not the direction in analysts' sentiment. The institutions have been buying on balance for the last 8 quarters, and their activity is ramping. Q2 is the highest gross activity for 7 consecutive quarters, and while selling accelerated from the previous quarter, the buying also accelerated to the highest gross and net levels since Q3 of 2021.

The institutions own 68% of the stock and growing.

The Technical Outlook: Delta Airlines Signals Continuation

The guidance sparked a 5% surge in Delta Airlines' price, confirming recent trends. The breakout suggests strong upward near-term momentum that could take the market up to the $49 region. The market may top out there, but if it can break out again, a move to $50 and higher is likely. Longer-term, shares of Delta should return to the pre-COVID highs as business improves over the next year or so.