Macro Weakness Aside, Delta Air Lines Analysts Largely Positive

Delta Air Lines, Inc. (NYSE:DAL) reported forecast-beating fourth-quarter earnings and in-line revenues Tuesday, leading three sell-side analysts to reiterate their stances on the airline equity. 

The Analysts

Buckingham Research Group analyst Daniel McKenzie maintained a Buy rating on Delta with a $62 price target.

Imperial Capital's Michael Derchin maintained an In-Line rating and $53 price target.

Raymond James analyst Savanthi Syth maintained an Outperform rating and lowered the price target from $66 to $60.

Buckingham: Delta A Better Story On Other Side Of Macro Volatility

Delta's results imply an environment that continues to look good, Buckingham's McKenzie said in a Wednesday note.

The analyst trimmed his Q1 revenue per available seat mile (RASM) outlook, factoring in a more severe hit to business travel from than what is suggested by the company's guidance.

Buckingham estimates Q1 EPS of 75 cents, toward the low-end of the guidance of 70-90 cents per share.

Delta's valuation could compress further, weighed down by macro uncertainties such as a government shutdown, downward revisions to the economic outlook, a trade war with China and the potential for a hard Brexit, McKenzie said. 

"Hence our view that while fundamentals justify a higher valuation, DAL is going to be a better stock story on the other side of the macro volatility."

Imperial Capital: Valuation to Remain Consistent With Peers

Delta's lukewarm Q1 unit revenue growth guidance reflects slower global growth expectations, difficult year-over-year comparisons, weakness in Europe, forex headwinds and lower government revenues stemming from the shutdown, Imperial's Derchin said in a Wednesday note. 

The government shutdown could cost Delta $25 million per month, the analyst said. 

The analyst expects Delta's valuation to remain consistent with its "Big Three" peers due to modest FY19 unit revenue growth, given the limited flexibility to raise domestic fares and lower fuel prices, difficult comparisons and potential weakness in Europe and China, according to Imperial. 

Raymond James Likes 2019 Setup

Global macro and political uncertainties are likely to continue to weigh on near-term sentiment toward Delta shares, Syth said in a Tuesday note. Following a 2-percent cut to estimate, the analyst said his 2019 EPS estimate is now below the consensus.

If current trends hold and a resolution to the government shutdown is reached, Syth said he continues to like Delta's 2019 setupand projects upside to estimates.

"Thus, along with its attractive valuation and healthy balance sheet, we maintain our Outperform rating, but are lowering our target price to $60, reflecting a lower multiple given heightened macro uncertainty and perception of lower quality (fuel-driven) earnings." 

The Price Action

Delta shares were up 1.34 percent at $48.47 at the time of publication Wednesday. 

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