Will Delta Air Lines (DAL) Continue Soaring After Q1 Earnings Surprise?

On Wednesday, Delta Air Lines DAL exceeded its Q1 expectations. The stock received an additional uplift following President Trump’s choice to suspend reciprocal tariffs on most nations (excluding China), which caused market indices to climb significantly.

Following the 90-day tariff review which acted as an additional boost after Delta’s positive Q1 earnings, DAL shares surged by 23% during today’s trading session. Despite this significant increase, Delta’s stock remains down by 26% for the year so far, prompting investors to question whether this rapid recovery will persist.

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Delta’s Q1 Results

Offering an early look into the Q1 earnings season, Delta announced first-quarter revenues of $14.04 billion, surpassing expectations of $13.8 billion and increasing from $13.74 billion recorded in the previous year. Regarding profitability, the company’s Q1 net income stood at $240 million, equivalent to adjusted earnings of $0.46 per share. This figure exceeded projections of $0.40 by 15% and showed a slight rise compared to the prior-year period’s earnings per share ($0.45).

Significantly, the operating cash flow for Quarter 1 stood at $2.4 billion, while Delta's operating income amounted to $569 million, reflecting an operating margin of 4%.

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Delta’s Cautious Guidance

Given the increased economic unpredictability surrounding international commerce, Delta’s CEO Ed Bastian mentioned that the company intends to safeguard profit margins and cash flow by decreasing projected capacity expansion during the latter part of the year. They will also be closely controlling expenses and capital spending as part of this strategy.

Despite the uncertain economic conditions, Delta chose not to offer a complete annual forecast. The company anticipates that their second-quarter earnings will likely fall within the range of $1.5 billion to $2 billion, with an expected EPS ranging from $1.70 to $2.30. This projection is lower than the present Zacks consensus estimate of $2.62 per share, indicating only an 11% increase. For the upcoming quarter, Delta projects revenues between $16.3 billion and $17 billion, aligning closely with the Zacks consensus figure of $16.71 billion and suggesting just a slight positive change of around 0.3%.

Delta’s Cheap Valuation

Given the year-to-date decline in DAL shares, long-term investors are undoubtedly drawn to Delta’s stock due to its low valuation. Currently trading at $44 per share, Delta has a forward earnings multiple of 5.2x, which is lower than the Zacks Transportation-Airline Industry average of 7.5x and is quite close to that of American Airlines AAL. and United Airlines UAL .

Additionally, DAL is trading at only 0.3 times its sales and significantly below the ideal threshold of less than 2 times sales, whereas the industry average stands at 0.5 times.

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Bottom Line

Currently, Delta holds a Zacks Rank #3 (Hold) rating. Although further gains for DAL might persist, additional upward momentum could hinge significantly on the trajectory of earnings estimates over the next few weeks as financial experts assess the firm’s restrained outlook along with President Trump’s temporary withdrawal of retaliatory tariffs.

The article was initially published on Zacks Investment Research ().