Initiate DAL Buy, $57 PT. DAL is a premier US network carrier with a global footprint, with two operating segments (Airline & Refinery) and growing loyalty & MRO programs at the center of the model.
Key points:
• Our view: The street consensus is fundamentally off on DAL earnings durability, where we forecast FY25E/FY26E EBITDA of $7.3bn/$8.2bn vs. consensus -$2.5bn both years.
• Management capacity discipline, rapid cost base acceleration (jet fuel -11% y/y), and resilient premium & loyalty revenues (59% of 1Q25 revenues) underwrite persistent FCF & surprise potential.
• Our $57 PT is achieved by a forward EV/EBITDA multiple of 4.5X on our '26 est, reflecting a balanced premium to peers closer to 3.4X, but still below historical euphoric levels, given DAL's outperformance in cash gen & earnings quality.
• We note macro risks incl a strong USD moderating inbound international travel & softer transport sector orders, but these are fully reflected in our target multiple & ests.
Bottom Line: We see a skew to the upside R/R as consensus adjusts sharply higher; our conviction on DAL's premium earnings & defensible margins drive our PT & Buy rating.
Follow the Money Trail: Unrelenting Cost Discipline Creates Durable Cash Generation
The opportunity is tangible: Delta's surging Premium and Loyalty revenue mix is materially changing the nature of risk and earnings durability within the portfolio, differentiating its margin profile in an otherwise volatile industry.