Goldman Sachs resumes coverage of Delta Air Lines with a buy rating, sees 20% upside in 2023
Delta Air Lines is a solid pick in the air travel industry, according to Goldman Sachs. The firm resumed coverage of the air carrier with a buy rating and 12-month price target of $40. That represents 20% upside. "DAL shares have performed at the better end of our US Airlines coverage universe this year, buoyed by improvements in international and corporate travel in addition to its relatively stronger balance sheet in light of rising rates," wrote analyst Catherine O'Brien in a Dec. 16 note. So far this year, Delta has shed nearly 15%, roughly in-line with the broader market. Recovering end-market exposure One of the reasons for Goldman's positive rating is that Delta is still seeing recovery in certain end markets post-pandemic. "While 2022 saw a marked improvement in corporate and international travel trends, these end markets are still significantly below 2022 levels and further behind in the path to full recovery than domestic and leisure travel," O'Brien wrote. In 2023, she expects corporate and international travel to continue to improve as restrictions drop in major markets such as the U.S. and UK midyear. In addition, Delta has always had about one fifth of its revenue from streams outside of passengers. That is slated to continue and provide growth opportunities as the company moves towards a more normalized period, according to Goldman. "One of the highest growth businesses in the non-passenger business is the refinery, which is up materially," said O'Brien. "This business segment is also fairly cyclical, but the company's loyalty program revenues and related miscellaneous revenue tied to other loyalty streams and its airport clubs are up 29% and 65%, respectively." Lastly, Delta has a stronger balance sheet than the industry overall, especially compared to its big airline peers. This helps insulate the business if the U.S. does experience an economic downturn.