UBS analyst Myles Walton upgraded Delta Air Lines (NYSE:DAL) to Buy from Neutral as he sees much better than expected pricing.
This factor has also pushed the analyst to increase the price target to $53.00 per share from $44.00.
“The implied 12% improvement in TRASM in 2Q22 vs. 2Q19 is well ahead of the mid-SD we thought possible and implies a unit revenue gain 35% larger than the unit cost increase due to fuel highlighting the current ability of Delta to push through elevated costs. DAL has been slower than peers to restore capacity by choice as latest schedules suggest -16% vs 2019 in 2Q while our coverage avg ex-DAL is -7%, but that restraint has allowed for consistent solid operating performance and we suspect share pick-ups as others struggle,” Walton said in a client note.
On the other hand, Walton downgraded to Neutral from Buy with a $51.00 per share price target. The analyst sees “visible headwinds” facing UAL, while the recent run-up in shares also brings the valuation into the spotlight.
“Although we see strong pricing in 2Q and beyond, the operational picture could be less smooth for UAL as they adapt to an aggressive growth strategy. UAL's scheduled capacity growth profile continues to get trimmed into 2Q, which will weigh on estimates of CASM ex and put significant doubts on the targeted gains (9% pre-tax margins) into 2023 that were laid out in the company's United Next plan last summer (and reiterated last quarter). Part of the capacity changes have been responses to the high fuel environment and slower international reopening.”
Delta stock is down 0.2% in pre-open Monday while UAL shares are trading nearly 1% in the red.
By Senad Karaahmetovic