This Underrated Stock Is Up More Than 75% Over the Last 12 Months -- and It Could Keep Rising

Shares of Delta Air Lines (NYSE: DAL) have been on a remarkable run lately. As of this writing, the stock has surged more than 75% over the past 12 months, effortlessly crushing the broader market's return over the same period.

For a notoriously cyclical industry that investors often approach with caution, a massive run-up like this might have investors who missed out on the big gain eying the stock cautiously.

Is it too late to buy the stock, or is this just the beginning of a much longer ascent?

While buying an airline stock after a massive rally might feel risky, a closer look at Delta's underlying business reveals a powerful and durable transformation.

Image source: Getty Images.

A structural shift

Delta's most recent financial update showed why investors have been loving the stock lately.

In its first quarter of 2026, the company posted record operating revenue of $14.2 billion, a nearly 10% year-over-year increase. The company's non-GAAP (adjusted) earnings per share came in at a $0.64 -- up 44% year over year.

But the more important detail is where those sales are coming from.

High-margin revenue streams represented 62% of total revenue during the period. Premium revenue (revenue from Delta One, first class, and other premium offerings) grew 14% compared to the year-ago quarter, while loyalty and related revenue increased 13%. In addition, that loyalty strength was fueled by double-digit growth in co-branded credit card spending, with payments from American Express (remuneration) topping $2 billion for the quarter.

By reducing its reliance on price-sensitive main cabin tickets, the company is building a more resilient, higher-margin business.

Cash flow and valuation

That high-quality revenue is translating directly into significant cash generation. Delta produced $2.4 billion of operating cash flow in the March quarter. And after accounting for capital expenditures, the company generated robust free cash flow of $1.2 billion.

Further, management is putting this cash to good use. Delta paid down $1.6 billion in debt and finance lease obligations during the quarter, bringing its adjusted net debt down to $13.5 billion. As the balance sheet strengthens and interest expenses fall, more of the company's operating profit will flow directly to the bottom line. Looking ahead to the June quarter, management expects the business to lead the entire industry by generating $1 billion in profit.

Despite this exceptional momentum, the stock remains surprisingly cheap. Delta trades at a price-to-earnings ratio of about 10.5 as of this writing. A multiple this low typically implies that the market expects earnings to grow at a pace about in line with inflation over the long haul. However, if Delta can maintain its current trajectory and continue expanding its premium and loyalty segments, I believe earnings could grow at a 10% to 15% average annual rate over the next five years, making the stock's current valuation appear far too pessimistic.

Of course, even Delta is subject to the risks typical of the airline industry. For instance, a surge in fuel costs or a macroeconomic downturn pressuring consumer travel budgets could weigh on both sales and margins.

But given the company's reduced debt load and structurally improved revenue mix, I believe the business is better equipped than ever to handle an economic soft patch.

Ultimately, I think Delta is a top-tier operator trading at an attractive valuation.

With the underlying business generating billions in free cash flow and the brand commanding intense customer loyalty, it would not be surprising to see shares double from here over the next five to seven years. For investors willing to stomach the typical turbulence associated with the airline sector, I believe Delta stock is a compelling buy today.

American Express is an advertising partner of Motley Fool Money. Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.