Why Delta Air Lines Is a Magnificent Value Stock for 2025

Delta Air Lines (DAL) has been on a remarkable run, with its stock price increasing by 71% over the past year. Despite this impressive performance, investors may still be wondering if there's room for further growth. The answer is a resounding yes, and here's why Delta is an excellent stock for a long-term investor portfolio.

Delta's valuation metrics suggest that the stock is undervalued, with a price-to-earnings ratio of 10.78 in 2024 and 8.70 in 2025 (Wall Street consensus). Additionally, its price-to-free-cash-flow ratio is 12.41 in 2024 and 11.10 in 2025. These metrics indicate that Delta's stock is significantly undervalued based on its current and forecast earnings and cash flow.

One of the primary concerns for investors is Delta's debt level, which stood at $16.2 billion at the end of the fourth quarter. However, Delta has been actively managing its debt, and its adjusted debt-to-EBITDAR ratio has improved to 2.6, down from 3 at the end of 2023. Management aims to reduce this ratio to 2 or less by the end of 2025, which should alleviate investor concerns about the company's financial health.

Delta's management has demonstrated discipline in managing capacity, leading to a return of ticket pricing power. The company's adjusted total revenue per available seat mile (TRASM) grew by 0.4% in Q4 2024, indicating that Delta is effectively managing its capacity and maximizing revenue. Additionally, Delta's management expects revenue growth of 7% to 9% in the first quarter of 2025, with continuing acceleration in corporate and consumer travel demand as well as spending on co-branded credit cards.

Delta's SkyMiles loyalty program and co-branded credit cards with American Express have been highly successful, generating significant revenue for the company. In 2024, Delta expects to receive $7 billion in remuneration from American Express, up from $7.4 billion in 2023. This revenue stream, along with Delta's focus on the premium traveler segment, should drive further growth in the company's premium revenue.

Delta's commitment to innovation and adaptability is evident in its investment in battery swap stations and charging infrastructure. This out-of-the-box innovation could potentially reduce EV buyers' range anxiety and increase loyalty among existing owners, further enhancing Delta's competitive position.

In conclusion, Delta Air Lines is an outstanding value stock for long-term investors. Its undervalued valuation metrics, strong cash flow generation, disciplined capacity management, successful loyalty program, and commitment to innovation make it an attractive investment opportunity. As the airline industry continues to recover and grow, Delta is well-positioned to capitalize on these trends and deliver substantial returns for investors.