We recently published a list of the 10 Best Airline Stocks to Buy For 2024. Since Delta Air Lines Inc. (NYSE:DAL) ranks 1st on the list, it deserves a deeper look.
Despite rising inflation, consumers worldwide continue to spend on travel and experiences, defying all expectations and forecasts. Latest data from the International Air Transport Association (IATA) estimates that the airline industry is expected to generate $30.5 billion in net income in 2024, driven by higher ticket prices and consumers’ desire to travel. Last year, the industry’s net income came in at $27.4 billion. According to data from the World Travel & Tourism Council (WTTC) the economic impact of the travel industry this year is expected to soar to $11.1 trillion, beating its previous level of $10 trillion recorded in 2019. The Council expects the tourism industry to become a $16 trillion industry over the next decade, accounting for about 11.4% of the global GDP.
However, not all is rosy in the airline industry. The competition in the industry is increasing, while geopolitical headwinds and rising employee costs continue to batter small and large airline companies. IATA was quick to highlight that despite the industry growth, airlines’ profit per passenger is just $6.14. Travel demand in China also remains subdued amid real estate and economic crisis in the country. However, analysts believe sooner or later the country would rebound and the best airline and travel companies would benefit from the influx of Chinese tourists.
A KPMG report on the airline industry highlighted the resilience of the airline industry and its fast recovery to pre-pandemics levels:
“The latest air travel data from IATA shows that passenger travel for November 2023 globally has reached 99.1% of November 2019 levels. November 2023 international RPKs reached 94.5% of November 2019 levels, while domestic traffic was 6.7% above the November 2019 level. Although international global travel remains 5.5% below pre-pandemic levels, IATA director general Willie Walsh said that the gap is “rapidly closing”, adding that current “economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”.”
In this backdrop, we decided to take a look at some of the best airline stocks to buy in 2024 according to hedge funds. For that we first listed down all holdings of an airline ETF, which provides investors exposure to the airline industry and tracks some of the biggest and most important airlines and aviation companies of the US and worldwide. From these stocks we chose 10 companies with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Delta Air Lines, Inc. (NYSE:DAL)
Number of Hedge Fund Investors: 51
Delta Air Lines, Inc. (NYSE:DAL) is the most popular airline stock among the 919 hedge funds tracked by Insider Monkey. A total of 51 hedge funds reported owning stakes in Delta Air Lines, Inc. (NYSE:DAL) as of the end of the March quarter. HSBC analyst Achal Kumar recently started covering the stock, along with three other major airliners, with a Buy rating. The analyst is bullish on the stocks amid strong demand.
Kumar thinks Delta Air Lines, Inc. (NYSE:DAL) is in the strongest position when compared to competitors like United Airlines and American Airlines, as the company owns 70% to 75% market share at its top six hubs.
Delta Air Lines, Inc. (NYSE:DAL) earnings are expected to grow by 10% in 2025. The stock is currently trading at 6.9x its 2025 EPS estimate. This forward P/E is lower than the sector median of 18.75.
Average Wall Street analyst price target for Delta Air Lines, Inc. (NYSE:DAL) is $61, which presents a 20% upside potential from the current levels. Being the top airline in the US, Delta Air Lines, Inc. (NYSE:DAL) is a clear beneficiary of the expected travel recovery in the next few years. Bain & Company expects annual air travel demand to exceed 2019 in 2024. Delta Air Lines, Inc. (NYSE:DAL) is the largest airline in the US in terms of domestic revenue.
Oakmark Fund stated the following regarding Delta Air Lines, Inc. (NYSE:DAL) in its first quarter 2024 investor letter:
“Delta Air Lines, Inc. (NYSE:DAL) is a leading global airline. Of the big three U.S.-based airlines (Delta, United and American), we see Delta as the most competitively advantaged. We believe the company’s years of industry-leading operational performance and investments in the customer experience have established Delta as the premium brand in the industry. We also think its geographically optimal hubs, high local market share, robust loyalty program and unique corporate culture all support healthy returns on capital. Delta currently trades at 6x our estimate of normalized earnings per share. We believe this is an attractive valuation for a competitively advantaged and growing business in an out-of-favor industry.”
Overall, Delta Air Lines, Inc. (NYSE:DAL) ranks 1st on Insider Monkey’s list of 10 Best Airline Stocks to Buy For 2024. You can visit 10 Best Airline Stocks to Buy For 2024 to see other stocks in the list. While we acknowledge the potential of Delta Air Lines, Inc. (NYSE:DAL), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Delta Air Lines, Inc. (NYSE:DAL) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.