What happened
Delta Air Lines (DAL -2.62%) reported solid third-quarter results and remains optimistic about the travel environment ahead. The results led to at least one Wall Street upgrade, and shares of Delta are up as much as 5% as a result.
So what
On Thursday, Delta kicked off airline earnings season with mostly good news. The company actually missed analyst earnings estimates, mostly due to Hurricane Ian, but reported better-than-expected revenue and said demand, including business and international demand, remains strong. As a result, Delta expects to be free-cash-flow positive in 2022.
The guidance was well received by investors, who have worried that inflation, and the Federal Reserve's effort to fight it, would lead to a slowdown in travel in the months to come. Airline tickets are a high-priced discretionary expense that is often deferred during a downturn. But Delta said that October metrics are pacing ahead of September and that November revenue is trending strong as well.
Cowen's Helene Becker was impressed, upgrading Delta shares to outperform with a price target of $54. The airline industry was hit hard by the pandemic, but Becker in a note said that Delta believes it has the assets needed to complete its network restoration, with a focus on improving operations and gaining share at its higher-margin core hubs.
Becker also raised her 2022 earnings estimate to $2.84 per share and her 2023 estimate to $7.00 per share, ahead of management's guidance.
Now what
It's been a rough few years for the airlines, but it appears that all of that pent-up demand caused by the pandemic continues to fuel results.
We've been saying for a while now that Delta is a best-of-class company with the management, assets, and labor structure needed to recover from the pandemic ahead of its peers. There was nothing in the most recent results and guidance to suggest that thesis is incorrect.
Delta has room to gain altitude from here.
