It’s all systems go in the airline industry. The segment was one of those hit the hardest during the pandemic as air travel – both domestic and international – came to a standstill.
With Covid-19 beating a hasty retreat, the clouds appear to be parting for airlines. For investors, of course, this signals opportunity. And if you’re going to bet on one airline to make the max out of this moment, Jefferies’ Sheila Kahyaoglu thinks one stands out above the rest.
“We are upgrading Delta Air Lines (DAL) to Buy as the best positioned airline for the next stage of the recovery,” the analyst said. “DAL is well positioned to take share given a strong domestic footprint with SMBs (small and medium-sized businesses) and overweight exposure to Europe.”
Along with the rating upgrade, Kahyaoglu also raised her price target from $50 to $60, implying upside of 30% from current levels. (To watch Kahyaoglu’s track record, click here)
According to Kahyaoglu, US domestic leisure travel’s comeback is almost complete, and industry checks indicate that by June, it will be “100% restored.” The analyst even thinks it is likely this summer’s domestic leisure travel levels will exceed those of 2019.
This sets the scene for the next stage of the recovery, with corporate and international travel due a comeback. As corporate sales account for roughly 50% of Delta’s revenue, and the company is also heavily exposed to SMBs, it is fair to assume the airline is poised to benefit. What’s more, the recovery is in the early innings, with domestic corporate travel “trending at 30% of normalized levels,” so there’s a lot of ground to make up still.
The other catalyst for Delta is in Europe, which will be the first transocean market to open meaningfully to US travelers.
Here, the company is also more heavily exposed than its peers. In 2019, 52% of DAL’s international ASMs (available seat miles) were Europe bound, compared to just 42% for UAL and 44% for AAL. “This could drive greater international share to Delta,” Kahyaoglu summed up.
On the whole, the Street has a more measured take on Delta’s prospects. Based on 6 Buys vs. 5 Holds, the stock has a Moderate Buy consensus rating. The forecast is for one-year gains of 24%, given the average price target clocks in at $58.44. (See DAL stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.