Morgan Stanley Sees Over 37% Rally in Delta Airlines; Forecasts Stock at $86 in Bull Case

Morgan Stanley raised their stock price forecast on Delta Airlines, one of the major players in the United States aviation industry, to $55 from $51 and said a decent Q1 guide and bullish commentary on the call about the potential for a traffic rebound, particularly in corporate, reinforces their bullish view on the airline space.

On Thursday, Delta Airlines reported a loss for the fourth consecutive time in the December quarter and a full-year 2020 loss for the first time in 11 years as COVID-19 travel restrictions significantly dented air travel demand but CEO Ed Bastian said he expects 2021 to be the year of recovery.

The Airline company which provides scheduled air transportation for passengers and cargo reported a quarterly adjusted loss of $2.53​​ per share, worse than the Wall Street consensus estimate of $2.47​​ per share loss.

“Despite coming into the new year on the back of tough 4Q traffic numbers amidst a third pandemic wave and the prospect of 1Q somewhat bereft of catalysts, we are very encouraged by mgmt’s confident tone on the conference call with a clear line of sight to the other side of the pandemic. We think this should result in a tide that will continue to rise and lift the airline stocks with it,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We believe Delta Airlines’ (DAL) strong customer loyalty/franchise, corporate relationships, footprint, historical PRASM/margin strength, balance sheet and mgmt. team leave them well-positioned amongst legacy peers to participate in the rebound, with the potential for an upside surprise if international/corporate volumes/PRASM can surprise to the upside in 2H21/1H22. Long-only investors returning to the sector as traffic comes back are also likely to flock to DAL, in our view, which makes the technical setup attractive as well. Our 2021/2022/2023 EPS moves to -$1.42/4.33/7.52 vs. $0.91/4.80/NA prior,”

Other equity analysts also recently updated their stock outlook. Credit Suisse raised the target price to $48 from $47. Stifel upped the stock price forecast to $49 from $39. JP Morgan lowered the price objective to $49 from $51.

In addition, Deutsche Bank lowered shares of Delta Air Lines from a “buy” rating to a “hold” rating and set a $47 target price in December. BNP Paribas began coverage and issued an “outperform” rating and a $54 price target.

Fourteen analysts who offered stock ratings for Delta Airlines in the last three months forecast the average price in 12 months at $48.83 with a high forecast of $58.00 and a low forecast of $40.00.

The average price target represents a 22.14% increase from the last price of $39.98. From those 14 equity analysts, six rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Delta Airlines’ shares closed 3.59% lower at $39.98 on Friday; the stock fell over 30% in 2020. Morgan Stanley’s stock price forecast suggests a potential upside of 37.57% from the stock’s current price.

Morgan Stanley also gave a target price of $86 under a bull-case scenario and $29 under the worst-case scenario. The firm currently has an “Overweight” rating on the Airline company’s stock.

“Why Overweight? Delta Airlines (DAL) has some of the strongest customer satisfaction numbers among the other Legacy peers, while also commanding a higher PRASM, making it our preferred Legacy carrier. With ample liquidity we see limited liquidity risk here,” Morgan Stanley’s Shanker added.

“Additionally, we continue to see DAL’s international alliances and partnerships as strategic assets, despite recent writedowns.”

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