Delta Air Lines (NYSE:DAL) has presented a restrained forecast for 2026, reflecting a careful approach amid continuing macroeconomic uncertainties, particularly for the upcoming year. Despite this cautious stance, the airline's financial fundamentals remain strong, marked by substantial free cash flow, modest leverage levels, and robust demand from premium travelers.
Following a virtual discussion with Delta's Chief Financial Officer Dan Janki subsequent to the company's earnings announcement, Andrew G. Didora, analyst at Bank of America Securities, reaffirmed a Buy rating on the stock with a price target of $80. Didora highlighted the airline's persistent strategic discipline and resilient cash generation as primary factors underpinning his positive outlook, even though the company's updated guidance conveys a more conservative near-term earnings outlook.
Didora underscored Delta's focus on enhancing premium revenue streams, a consistent source of cash flow, and maintaining low financial leverage. He noted that the airline's diversified revenue profile, including segments such as loyalty programs and its maintenance, repair, and overhaul (MRO) business, differentiates it favorably from industry competitors. These factors align comfortably with his long-term earnings per share (EPS) forecast of $7.30 for 2026, which remains unchanged following the management commentary.
Conservative Financial Guidance Reflecting Macroeconomic Challenges
In updating its EPS guidance for 2026, Delta proposed a range between $6.50 and $7.50, which sits below both Didora's estimate and consensus market projections near $7.30. The airline attributed this more cautious outlook primarily to the uncertain macroeconomic environment anticipated in 2025. Despite this tempered guidance, management conveyed optimism about the underlying fundamentals within the aviation industry, pointing out that both consumers and businesses have adapted to ongoing volatility. Importantly, demand from higher-income travelers appears steadfast, supporting premium revenue growth which surged approximately 9% in the fourth quarter. Early 2026 capacity trends within the industry also appear favorable.
Expanding MRO Operations Support Growth Prospects
Didora highlighted significant progress in the repositioning and expansion of Delta's MRO business. Historically, this segment's revenue hovered near $800 million, constrained by prioritization of the airline’s internal maintenance requirements. Strategic initiatives, however, have broadened its business backlog, including securing a 10-year maintenance contract with UPS, signaling enhanced external growth prospects.
The company now targets an annual MRO revenue growth rate of 20%, anticipating an upward shift in segment profit margins from approximately 9% in 2025 to mid-teens percentages over time. While there may be variability in quarterly performance, the overarching expectation is for consistent annual margin improvement. Under these assumptions, MRO operating profit could surpass $200 million by 2028, a significant increase from the 2025 figure of $76 million.
Financial Metrics Reinforce Stability and Deleveraging Path
Free cash flow generation remains a prominent strength for Delta. The airline reported $4.6 billion in free cash flow in 2025 and projects a follow-up in the $3 billion to $4 billion range for 2026, despite transitioning to a partial tax payer status. Capital discipline is maintained through controlled capital expenditures and a steady retirement of 20 to 30 aircraft annually. These efforts underpin Didora's projection that Delta's net leverage ratio could decline to about 0.5 times by 2028.
Based on a 2026 projected EBITDAR multiple of approximately 6.0 times, Didora’s $80 price target suggests potential upside of roughly 12% from the prevailing share price around $71.34 as of January 16, 2026.
Additional Industry Analyst Perspectives
Similarly, Morgan Stanley analyst Ravi Shanker maintained an Overweight rating on Delta, accompanied by a $90 price target, in spite of the company’s prudent guidance. Shanker acknowledged that fourth-quarter results exceeded EPS expectations but noted that revenues slightly lagged and guidance midpoint fell short. He interpreted management’s cautious stance as deliberate given elevated headline risks, yet emphasized confidence in the carrier’s strong underlying fundamentals, including a pre-tax profit estimated near $5 billion, record free cash flow, and durable demand observed early in January.
Market Performance Snapshot
At the time of publication, Delta shares experienced a minor decline of 0.34%, trading at $71.40. This price is close to the stock’s 52-week high of $73.16. These figures reflect investor sentiment and ongoing market adjustments in response to the company's latest financial disclosures and outlook.
Key Points:
- Delta Air Lines presents cautious 2026 EPS guidance between $6.50 and $7.50, below analyst and street estimates, driven by macroeconomic uncertainty in 2025.
- Strong free cash flow generation of $4.6 billion in 2025 supports disciplined capital allocation alongside low leverage.
- Premium revenue growth remains resilient, with a 9% increase in the fourth quarter, supported by robust demand from higher-income travelers.
- MRO business is repositioned for growth, targeting 20% annual revenue growth and improved margins, with operating profit expected to exceed $200 million by 2028.
Risks and Uncertainties:
- Economic volatility in 2025 could continue to affect travel demand and Delta’s financial performance.
- Potential variability in quarterly MRO business profitability may lead to fluctuations despite expected steady long-term margin improvement.
- Market reactions to cautious guidance could pressure the stock price in the near term despite underlying strengths.
- Geopolitical or industry-specific shocks could alter demand patterns, especially among premium travelers.
Disclosure: This article is intended for informational purposes and does not constitute investment advice. Readers should conduct their own research or consult financial professionals before making investment decisions.