After last year’s turbulence, many airline stocks are soaring once again. Delta Air Lines (NYSE:DAL) is one of them. Since the start of the year, Delta Air Lines stock has climbed steadily higher, surging by a total of 31.72%.
While you may regret not getting back into the legacy carrier’s shares before this rally, not to worry. There’s still time to catch this flight. At least, based on key takeaways from Delta’s latest earnings release, as well as more recent promising news regarding air travel demand,
Considering these factors, the ingredients are in place for a climb to even higher price levels. The airline sector can be volatile and unpredictable, but a lot suggests that trend will stay your friend for the foreseeable future.
Delta Air Lines Stock: Cruising to New Highs
At the start of 2024, issues like the fallout from air safety incidents made it seem as if the airline industry’s post-pandemic hot run would continue to cool down, as it did during the preceding year.
However, since the spring, the market has become bullish again on Delta Air Lines stock. Why? For starters, Delta’s latest quarterly earnings release in April helped to assuage concerns about wanting travel demand and the prospect of less stellar results.
Beating on both revenue and earnings during Q1 2024, the airline also provided updates to guidance above that of analyst consensus.
Since last month, the DAL rally has carried on. As hinted above, a big reason for this may be recent promising data about air travel demand this summer. Forecasts call for the total number of air passengers between June 1 and Aug. 31 to rise by 6.3% compared to the same period last year.
Based on these developments, it’s looking more likely that Delta could deliver earnings this year that exceed its own scaled-back forecasts issued earlier this year. Instead of annual earnings coming in at between $6 and $7 per share, earnings in excess of $7 per share may be attainable.
Plenty More Runway Remains
Yes, although this airline is clearly still crushing it, the convincing performance of Delta Air Lines stock clearly shows that the market is well aware of what’s going on. DAL has climbed to eight times forward earnings. That’s relatively high for an airline stock,
However, I wouldn’t assume that shares have completely run out of runway. The reasons for this are twofold. First, it may be possible for airline stocks going forward to sustain higher valuations relative to years past.
In a recent article, Seeking Alpha commentator Noah’s Arc Capital Management laid out this argument.
Thanks to positives for the industry, like the impact of consolidation, plus supply constraints, airlines could from now be less prone to “boom and bust” results.
Even if this only means airline stocks are rerated to forward multiples in the low-teens range, this would undoubtedly give Delta Air Lines shares a major lift.
In the years ahead, sell-side analysts anticipate continued earnings growth, thanks to steadily increasing personal and business air travel demand. Sell-side consensus calls for earnings of $8.68 per share in 2026, with the upper end of forecasts nearing $10 per share.
Bottom Line: Delta is Still Boarding for a Further Liftoff
If the aforementioned bull case plays out, forget about DAL merely re-hitting pre-COVID price levels of around $60 per share. A surge toward $75 per share could be within reach sooner than you think.
Over a multiyear time frame, Triple-digit prices may not be out of the question, either. Again, it’s not a lock that the salad days will continue for the airline sector. You may want to take this into account for position-sizing.
However, with the little sign that current trends are on the verge of experiencing a crash landing, Delta Air Lines stock is still boarding for a further liftoff, so feel free to enter a position at current price levels.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
