Delta Air Lines Faces Headwinds: Why Raymond James Cut the Price Target—and Still Thinks It’s a Buy
38min read Raymond James’ decision to lower Delta Air Lines’ (DAL) price target to $60 from $62 reflects a cautious near-term outlook for the airline industry. Yet, the firm’s “Strong Buy” rating underscores a deeper belief in Delta’s resilience amid macroeconomic turbulence. Let’s unpack the factors driving this mixed message—and why investors should pay attention.
Capacity Constraints: A Necessary Trade-Off
Delta’s announcement to flatten capacity growth in the second half of 2025 was a strategic move to protect margins, but it also signaled caution about demand sustainability. By prioritizing margin stability over expansion, Delta aims to weather weakening consumer and corporate confidence. Raymond James analysts noted this decision as prudent but acknowledged it highlights underlying vulnerabilities.
The airline’s focus on disciplined growth contrasts with its peers’ struggles. However, the move risks ceding market share if competitors accelerate expansion later.
Earnings Misses and Revised Forecasts
Delta’s Q1 2025 results were stronger than expected (EPS of $0.46 vs. $0.44), but the company lowered its Q1 guidance mid-quarter due to soft bookings—a red flag. Raymond James slashed 2025–2027 EPS estimates by 6–9%, revising projections to $5.60, $6.70, and $7.60.
Analysts cited elevated fuel costs and revenue softness as key drags. Even with CASM-Ex (cost efficiency metric) held to low single-digit growth, rising jet fuel prices (projected 10% above forward curves) are squeezing margins.
Demand Declines: A Perfect Storm
Raymond James’ Savanthi Syth identified three demand headwinds:
1. International Travel Slump: U.S.-Europe bookings fell 13% for Q3 2025, while Canadian demand weakened due to policy shifts.
2. Domestic Caution: Inflation and a “more isolationist” U.S. economy have dampened leisure and corporate spending.
3. Government Sector Cutbacks: Layoffs in government and consulting sectors (e.g., Deloitte) reduced a stable revenue stream.
While premium travel remains strong, the broader demand volatility complicates revenue projections.
Structural Strengths: Why the “Strong Buy” Stands
Despite these challenges, Raymond James maintains its bullish stance due to Delta’s enduring advantages:
- Margin Superiority: Delta’s CASM-Ex control keeps margins above legacy competitors.
- Balance Sheet Flexibility: A $28.41B market cap and 21.53% gross profit margin provide financial buffers.
- Strategic Partnerships: A 10-year maintenance deal with UPS diversifies revenue.
- Valuation Discount: Trading at a P/E of 6.38, Delta is undervalued relative to peers.
The Bottom Line: Navigating Uncertainty
Raymond James’ $60 price target reflects near-term risks, but the Strong Buy rating bets on Delta’s ability to outperform peers through disciplined cost management and strategic pivots. Key catalysts to watch:
- Fuel Price Trends: If jet fuel costs stabilize below forecasts, margins could rebound.
- International Demand: A pickup in transatlantic travel could offset domestic softness.
- Policy Certainty: Resolution of U.S. tariff disputes might ease sector-wide pressures.
The stock’s current valuation offers a margin of safety, especially if the market overreacts to short-term headwinds. Historically, airlines like Delta have thrived during periods of cost discipline and consolidation.
Conclusion: A Buy for the Long Game
Delta’s price target cut is a reflection of macroeconomic realities, not inherent weakness. With a robust balance sheet, industry-leading margins, and a valuation that discounts worst-case scenarios, the airline remains a compelling play for investors willing to look past 2025’s turbulence. As Syth noted, “Delta’s structural advantages are too significant to ignore—even in choppy waters.”
The path forward isn’t smooth, but Delta’s ability to adapt has been proven. For now, the skies may be gray—but the horizon still holds blue.
