Down 27% from peak. Should you buy Delta Air Lines stock when it’s falling?

Delta Air Lines, Inc. (DAL) is an Atlanta-based airline that provides scheduled domestic and international flights. Its services include passenger transportation, cargo transportation, professional security, training and consulting, aircraft management, aviation solutions, and repair and overhaul.

The airline also has a refining segment, Monroe Energy, which supplies Delta with 80% of its jet fuel. With a fleet of more than 1,200 aircraft, Delta serves more than 275 locations in 50 countries. The airline was founded in 1924 and has a market capitalization of $25.56 billion.

DAL shares have fallen 27% since a multi-year high reached in May, including a sharp 16% drop over the past month. The airline stock is down more than 2% year-to-date, lagging the broader S&P 500 ($SPX) index’s positive performance.

Delta reports disappointing results

Delta Airlines reported its second-quarter results in mid-July, and Wall Street was unimpressed by the mishmash of numbers. The airline’s revenue of $16.66 billion beat analysts’ consensus estimates of $16.25 billion, but earnings for the quarter came in at $2.36 per share, below Wall Street’s forecast of $2.37 per share.

The carrier generated free cash flow of $2.7 billion, of which $2.1 billion was used to repay debt.

Delta also increased its production capacity by 8%, which led to a weak unit revenue result. The forecast was for unit revenue to be flat or down 2%, but it fell 2.6%, contributing to the stock falling more than 8% in the three days following the results.

Looking ahead, management is forecasting earnings of $1.70-$2.00 per share for the current quarter, indicating an expected year-over-year decline. Revenue is expected to increase 2%-4% compared to last year.

Delta seeks damages from Microsoft and CrowdStrike

Delta’s situation worsened on July 19 when it became one of the companies hit by a global outage on Microsoft’s (MSFT) platforms deploying CrowdStrike (CRWD) cybersecurity software. Delta is now suing Microsoft and CrowdStrike for compensation after the outage led to a five-day disaster that caused the cancellation of more than 7,000 flights — leaving Delta with a financial loss of $500 million, according to Delta CEO Ed Bastian.

In an interview with CNBC, Bastian said: “We have to protect our shareholders. We have to protect our customers, our employees, from harm, not just cost but brand, reputational harm.”

But because other airlines recovered much faster than Delta, the response prompted an investigation by the U.S. Department of Transportation. Delta, which estimates third-quarter compensation and reimbursement fees at about $380 million, also faces a class-action lawsuit.

Both Microsoft and CrowdStrike have rejected Delta’s claims, with a Microsoft lawyer calling the claims “incomplete, false, misleading, and damaging to Microsoft and its reputation.”

What are analysts saying about Delta stock?

Analysts are still quite bullish on the airline company, as evidenced by the unanimous Strong Buy rating among all 19 brokerage firms surveyed. The average price target of $60.59 implies a potential upside of 54% from current prices.

At 6.36 times forward earnings, DAL stock appears cheap; however, investors looking to grow their holdings should start small and exercise caution given the current uncertainty surrounding the stock.

As of the date of publication, Ruchi Gupta did not hold (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.