Delta Selloff Has Gone a ‘Little Too Far,’ Analyst Says. The Stock Could Rally Soon.

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A Citi analyst initiates a 90-day positive catalyst watch on Delta stock and reiterates a Buy rating.

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Yuki Iwamura/AFP via Getty Images

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Investors may have reacted too harshly to Delta Air Lines’ second-quarter earnings miss, according to Citi analyst Stephen Trent. But thanks to the pullback, the stock may soon be poised for a rally.

Delta (ticker: DAL ) shares fell a little more than 4% when the airline posted earnings last Wednesday, posting adjusted earnings of $1.44 a share, well under the consensus call for $1.73.

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That drawback seemed to go a “little too far”, Trent wrote in a research note on Monday.

“This is not 2020,” he wrote. “Delta’s margins and cash flow generation are much better than they were at that time — yet the stock is back at those mid-year levels.”

The airline today is in a much different place, generating profit and more than $1.6 billion in free cash flow over the quarter. That’s why Trent is initiating a 90-day positive catalyst watch on the stock and added a Buy rating on Monday.

“There now seems to be a lower bar for Delta to surprise the market positively over the next three months,” he wrote.

While Delta has struggled to revamp its full fleet, along with other major US airlines, the analyst believes the market may be under-appreciating the company’s flight schedule course correction, which should translate to more normalized operations in the third quarter and better margins, Trent wrote. The airline is also on track to overtake its rivals in terms of passenger revenue on its top routes, he added, and is well-positioned to ride out an economic slowdown.

Shares of Delta were 5.4% to $31.71 on Monday. The stock has lost almost 19% this year.

Delta was the first major US airline to report second-quarter earnings. Rivals American Airlines ( AAL ) and United Airlines Holdings ( UAL ) are scheduled to report later this week.

Write to Sabrina Escobar at [email protected]


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