Delta Air Lines (DAL) Faces Fuel Cost Pressure, Is The Stock Still Fully Valued?

Fuel costs and seasonal pressure frame Delta Air Lines now

Reports of persistently high jet fuel prices and a potentially difficult winter travel season have put Delta Air Lines (DAL) back under the microscope for investors watching cost pressures.

Fuel concerns are affecting a stock that has already swung around this year, with Delta Air Lines now trading at US$80.17 after a 7 day share price return of 4.96%, a 30 day share price decline of 12.23%, and a year to date share price gain of 16.09%.

That choppy pattern comes against a longer backdrop where total shareholder return sits at 33.56% over 1 year and more than doubles over 3 and 5 years. This suggests that recent concerns about jet fuel and winter demand are cooling what had been building momentum in the story.

Scan beyond Delta Air Lines and stress test your thesis against other carriers and travel stocks facing similar fuel and demand questions by reviewing our curated 83 resilient stocks with low risk scores.

Delta Air Lines now carries recent volatility, fuel headlines, and a solid multi year shareholder return record into the valuation debate. Does that mix still leave more upside potential than downside risk for new buyers?

Most Popular Narrative: 26.8% Overvalued

Delta Air Lines closed at $80.17, while the most followed narrative on the stock, according to PittTheYounger, calculates a fair value closer to the high $40s.

Yet with its early warning about waning travel demand in March, my original assumptions in February regarding revenue growth and future PE had to be revised downwards from 4 to 2 per cent p.a. and 12, respectively. This resulted in a fair value of about $53.50 a share. After DAL's quarterly numbers as of 9 April and the related poor visibility for the remainder of the year, I have to lower my anticipated PE further to 11, leading to a new fair value of about 49 bucks a share that still leaves some upside.

Read the complete narrative.

Want to understand why this narrative still sees upside even with that lower fair value anchor? The explanation lies in how it treats margins, trims growth, and resets the profit multiple without abandoning Delta Air Lines as a long term cash generator.

Result: Fair Value of $49 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

Still, that story can crack quickly if jet fuel spikes again or if a deeper demand slowdown forces Delta Air Lines to cut capacity and pricing power.

Find out about the key risks to this Delta Air Lines narrative.

Another view on Delta Air Lines valuation

While the most followed narrative on Delta Air Lines points to shares trading above a roughly $49 fair value, the SWS DCF model paints a very different picture. At $80.17, the stock screens as trading about 65% below an estimated $229.45 value based on future cash flows. This suggests a wide gap between market price and long run cash expectations. Could that disconnect be a signal, or just a sign that the inputs are too optimistic?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Delta Air Lines for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed signals on Delta Air Lines can feel unsettling, so act while the data is fresh and pressure test the story yourself using the 3 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Delta Air Lines?

If Delta Air Lines does not fully match your plan, consider broadening your watchlist now so you do not miss other potential opportunities taking shape.

• Target resilient balance sheets by scanning companies on the list of solid balance sheet and fundamentals (24 results).
• Hunt for mispriced quality by reviewing the 49 high quality undervalued stocks that combine fundamentals with compressed expectations.
• Spot early stage potential by filtering for the 17 high quality undiscovered gems that pair strong financials with limited market attention.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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