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The Ratings Game: After Delta’s ‘impressive’ fourth-quarter results, weakness in the first quarter presents ‘buying opportunity’

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Delta Air Lines Inc. reported fourth-quarter results that beat analysts’ top- and bottom-line estimates early Friday, although the carrier’s stock fell on weaker-than-expected first-quarter guidance.

But Cowen analyst Helane Becker says that Delta’s
DAL,
-4.90%

fourth-quarter numbers are particularly noteworthy after a tough year for the airline industry. Carriers have been wrestling with the impact of fuel prices, hiring challenges and a bumpy recovery from pandemic-era travel disruption.

“Delta had an impressive [fourth-quarter] performance to close out a tumultuous year,” Becker wrote in a note released Friday. “Delta reported [fourth-quarter 2022] adjusted revenue, adjusted EBIT [earnings before interest and taxes] and [adjusted earnings per share] above both our and consensus estimates despite the challenges over the holiday period.”

Also read: Delta Air Lines’ Q4 results beat analysts’ top and bottom line estimates, stock falls on weaker-than-expected guidance

In a statement released Friday, Delta said that consumer demand remains robust. Strong demand in the fourth quarter drove domestic total passenger revenue 7% higher compared with the same quarter in 2019, before the pandemic hit, the company said. International passenger revenue was up 5% in the fourth quarter, compared with the fourth quarter of 2019.

Set against this backdrop, first-quarter weakness could present an opportunity, says Becker. “Guidance for [the first quarter] came in below our expectations as management is now incorporating the impact of higher labor expenses in their outlook,” she said in the note. “[The first quarter] is seasonally the weakest quarter of the year, and we would use any weakness as a buying opportunity.”

Cowen has a $54 price target for Delta and rates the stock outperform.

Related: Airline stocks fall premarket after Delta’s weaker-than-expected guidance

Delta’s stock has fallen 4.5% in the last 12 months, compared with the S&P 500’s
SPX,
-0.20%

decline of 14.5%. The U.S. Global Jets ETF
JETS,
-0.70%

is down 10.7% over the same period.

Of 21 analysts surveyed by FactSet, 19 have an overweight or buy rating for Delta and two have a hold rating.

Airline stocks fell before market open Friday. Delta’s stock is down 5.5%, while American Airlines Group Inc.
AAL,
-0.95%

 is down 4% and United Airlines Holding Inc.
UAL,
-0.58%

is down 3.4%. Southwest Airlines Co.’s
LUV,
-0.60%

stock is down 2.3%, JetBlue Airways Corp.
JBLU,
-0.25%

is down 3.6% and Alaska Air Group Inc. 
ALK,
+0.06%

is down 1.7%. Spirit Airlines Inc.’s
SAVE,
+0.58%

 stock is down 2.4%. The U.S. Global Jets ETF
JETS,
-0.70%

 is down 2.4%.

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