Why Delta Stock Soared Through Market Turmoil Today
While the S&P500 the index fell into negative territory on Monday, Delta Airlines (DAL 4.00% ) stock kept its nose up and gained altitude. Shares of the incumbent even rose 4% on the day, largely thanks to an increase in an analyst’s price target.
This analyst was JefferiesSheila Kahyaoglu, who now believes Delta is worth $45 per share, up substantially from its previous level of $38. With the new target being almost 20% higher than the current share price, Kahyaoglu maintains its buy recommendation.
However, not all tipsters improve their opinion of Delta. Last Thursday, Barclays‘ Brandon Oglenski lowered his price target slightly to $42 per share from $45 previously. Although the analyst pointed out that demand for flights “appears finally to be on the way to a significant and sustainable recovery”, he is concerned about rising labor costs and in particular rising prices fuel.
Typically, these two items are respectively the n°1 and n°2 expenses of the airlines.
The push-and-pull dynamic between higher demand on the one hand and rising costs on the other, has made investors somewhat hesitant to invest money in airline stocks. At the moment, the sky looks relatively sunny, as fuel prices have started to come down to some extent. There is no guarantee that this trend will continue, however, due to the instability caused by the war in Ukraine.
Yet many people in many parts of the world are eager to travel again. This pent-up demand will prevail for many airlines; if fuel prices end up falling significantly, more than a few carriers could benefit from several quarters of better than expected fundamentals.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.