Delta Air Lines: A Valuation Discount Ahead of Key Earnings

Delta Air Lines (DAL) is approaching a critical juncture. Its July 10 earnings report will test whether the stock's valuation discounts reflect fundamental undervaluation or lingering risks in the airline sector. With a P/E ratio of just 8.4x and an EV/EBITDA of 5.8x, Delta trades at a significant discount to historical averages. Yet, near-term catalysts—including strong international revenue growth and capacity discipline—suggest the stock could be poised for a rerating. Let's unpack the opportunity and risks.

The Near-Term Catalyst: Earnings and Operational Momentum

Delta's earnings on July 10 will dominate investor focus. The company has a history of volatile post-earnings moves, with shares jumping 23% in April 2025 and 9% in January 2025. Analysts currently project Q2 EPS of $2.05, down slightly from last year's $2.36 but still robust. Key metrics to watch:

• International Revenue Growth: The Pacific and Transatlantic regions grew by 16% and 5%, respectively, in Q1. Delta's premium and loyalty segments, which grew 7%, are also critical to its margin expansion.
• Operating Leverage: Delta aims for double-digit operating margins in Q2, up from 5% in Q1. A successful execution here could validate its cost discipline.
• Capacity Management: Flat capacity growth for the second half of 2025 suggests Delta is prioritizing yields over volume, a strategy that could help stabilize margins.

Valuation: A Discounted Multiple, But at What Cost?

Delta's valuation metrics scream undervaluation. As of June 13, 2025, its trailing P/E of 8.4x is below the 10-year average of 21.7x. Its EV/EBITDA of 5.8x is also below the industry's historical range (4–6x), despite strong free cash flow ($1.3B in Q1). Analysts estimate a fair value of $61.91—16% above its June 13 price of $49—based on multiples that assume a return to normalized profitability.

But the discount isn't arbitrary. Delta's valuation reflects two key risks:
1. Domestic Demand Softness: Main Cabin demand remains weak, with Delta withholding a full-year outlook.
2. Leverage and Fuel Costs: While Delta's leverage is manageable, fuel prices and labor costs (including a $1.4B profit-sharing payout) could pressure margins.

The Case for a Rerating: Why Now?

Despite these headwinds, three factors suggest the valuation discount is overdone:

1. International Strength: The Pacific and Transatlantic markets are key profit drivers. With transpacific demand up 16%, Delta's premium cabin exposure could offset domestic weakness.
2. Capacity Discipline: Unlike peers that are adding seats indiscriminately, Delta's flat capacity growth should help maintain yields.
3. Balance Sheet Fortitude: Delta's $50.5B enterprise value includes $9.4B in cash and equivalents, giving it flexibility to navigate macro uncertainty.

The Risks: Don't Underestimate the Challenges

The stock's upside hinges on execution. If Delta's Q2 report shows:
- Slower-than-expected international revenue growth,
- A widening gap between its margins and peers', or
- Evidence of domestic demand deteriorating further,

the valuation discount could widen further. Analysts are already cautious: While 14 have a “Strong Buy” rating, the stock's 18.6% year-over-year EPS decline (to $1.92) reflects a tough comp from 2024's post-pandemic surge.

Investment Decision: Buy the Dip, but Watch the Catalysts

Delta's valuation offers a compelling entry point, but investors should wait for the July 10 earnings to confirm its operational narrative. If the report shows margin resilience and international strength, the stock could rise toward the $62–$86 fair value range. However, with domestic demand a wildcard, a stop-loss below $45 makes sense.

Final Take

Delta Air Lines is a valuation paradox: cheap on multiples but expensive in risk. The upcoming earnings report will be the acid test. For investors willing to bet on Delta's operational discipline and international tailwinds, now is the time to position—but keep a close watch on July's results.

Disclaimer: This analysis is for informational purposes only and should not be considered investment advice.