Delta (DAL)

Global airline Delta Air Lines (NYSE:DAL) announced better-than-expected revenue in Q3 CY2025, with sales up 6.4% year on year to $16.67 billion. Guidance for next quarter’s revenue was optimistic at $16.03 billion at the midpoint, 2.2% above analysts’ estimates. Its GAAP profit of $2.17 per share was 39.8% above analysts’ consensus estimates.

Company Overview

One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE:DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Competitors in the air carrier space include American Airlines (NASDAQ:AAL), JetBlue Airways (NASDAQ:JBLU), and Southwest Airlines (NYSE:LUV).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Delta’s 20.7% annualized revenue growth over the last five years was solid. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Delta’s recent performance shows its demand has slowed as its annualized revenue growth of 4.8% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its number of revenue passenger miles, which reached 67.62 billion in the latest quarter. Over the last two years, Delta’s revenue passenger miles averaged 5.7% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see the company’s monetization was fairly consistent.

This quarter, Delta reported year-on-year revenue growth of 6.4%, and its $16.67 billion of revenue exceeded Wall Street’s estimates by 3.8%. Company management is currently guiding for a 3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.7% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Delta’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 9.5% over the last two years. This profitability was mediocre for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, Delta generated an operating margin profit margin of 10.1%, up 1.2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

In the coming year, Wall Street expects Delta to maintain its trailing 12-month operating margin of 9.7%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Delta’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, Delta reported EPS of $2.17, up from $1.97 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Delta’s full-year EPS of $7.10 to shrink by 2.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Delta has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, lousy for a consumer discretionary business.

Delta’s free cash flow clocked in at $687 million in Q3, equivalent to a 4.1% margin. This result was good as its margin was 4.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting Delta’s free cash flow margin of 4.9% for the last 12 months to remain the same.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Delta’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 15.9%, slightly better than typical consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Delta’s ROIC averaged 3.1 percentage point increases each year. This is a good sign, and we hope the company can keep improving.

Delta reported $3.79 billion of cash and $20.98 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $8.52 billion of EBITDA over the last 12 months, we view Delta’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $702 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Delta’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its revenue and EPS both outperformed Wall Street’s estimates in the quarter. Overall, this print had some key positives. The stock traded up 7.6% to $61.50 immediately following the results.

Updated: December 4, 2025 at 10:46 PM EST

Before investing in or passing on Delta, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Delta falls short of our quality standards. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Delta’s number of revenue passenger miles has disappointed, and its Operating margin is anticipated to remain the same over the next year.

Delta’s P/E ratio based on the next 12 months is 9.9x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $71.99 on the company (compared to the current share price of $67.21).