How Should You Play DAL Stock Post Q1 Earnings and Revenue Beat?

Core Viewpoint - Delta Air Lines reported better-than-expected revenues and earnings per share for Q1 2025, but decided against reaffirming its 2025 financial guidance due to ongoing uncertainties, particularly related to tariffs [1][7]. Group 1: Earnings Performance - Delta's Q1 2025 earnings were 46 cents per share, exceeding the Zacks Consensus Estimate of 40 cents, marking a 2.2% year-over-year increase attributed to lower fuel costs [2]. - Revenues for the quarter reached $14.04 billion, surpassing the Zacks Consensus Estimate of $13.81 billion, and reflecting a 2.1% year-over-year growth [4]. - The airline's earnings beat in Q1 was its second in the last four quarters, with an average earnings beat of 4% across those quarters [6]. Group 2: Revenue Breakdown - Domestic revenues were weak, with a 1.2% decline in main cabin revenues and only a 1% increase in domestic passenger revenues year-over-year, primarily due to tariff-induced demand slowdown [4]. - In contrast, international revenues increased by 7% year-over-year, driven by strong demand for long-haul travel, particularly in transatlantic routes [5]. Group 3: Future Outlook - Delta withdrew its full-year 2025 outlook due to lack of visibility and plans to provide updates later in the year as conditions improve [7]. - The airline expects adjusted revenues for Q2 to be down 2% to up 2% year-over-year, with an operating margin projected between 11-14% and earnings per share in the range of $1.7-$2.3 [9]. Group 4: Cost Management and Market Position - To address weak demand, Delta is reducing capacity, expecting flat capacity in the second half of 2025 compared to previous expectations of 3-4% growth [8]. - Analysts have revised earnings estimates for 2025 and 2026 downward by 14.7% and 11.2%, respectively, indicating a pessimistic outlook for Delta's earnings growth potential [10]. Group 5: Stock Performance and Valuation - Delta's stock has declined significantly, with a year-to-date drop of 38%, underperforming the industry alongside other major airlines [11]. - Despite the challenges, Delta's management resumed quarterly dividends in 2023 and increased the payout by 50% in June 2024, reflecting confidence in cash flow and prospects [15]. - Delta is currently trading at a discount compared to industry levels based on the forward 12-month price-to-sales ratio, with a Value Score of A [16].