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Proprietary Data Insights Financial Pros’ Top Airline Stock Searches in the Last Month
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Should You Hold Delta Airlines (DAL)? |
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Delta Airlines (DAL) latest earnings report painted a rosy picture. The company beat expectations on earnings and revenues as capacity, premium tickets, and loyalty awards travel expanded. Higher capacity and lower fuel prices pushed unit costs down 6%. However, management forecast lower margins in Q2. And although financial pros doubled their search volume for Delta, many held back on their research compared to prior earnings reports. Yet, the company trades at earnings and cash multiples ~20% below their 5-year average. Plus, air travel only looks to improve from here on out. So, is this pullback a chance to grab a seat on Delta Air? Delta’s Business Atlanta-based Delta Airlines runs the world’s largest commercial fleet with 963 aircraft that service 304 destinations in 52 countries. Though they are a global airline, three quarters of its revenue comes from domestic flights within the U.S. Delta currently has purchase commitments for 325 aircraft, of which 100 are Boeing 737-10, with the remainder being Airbus planes. This is part of its fleet modernization strategy to become more fuel efficient and enhance customer satisfaction. Additionally, the company is investing in infrastructure projects such as the redevelopment of its terminal at LaGuardia airport. Financials
Source: Stock Analysis In the latest quarter, Delta’s revenues grew 7%, while premium ticket purchases increased 10%. Loyalty programs, driven by customer spend on American Express cards and new cardholder acquisitions increased by 10% as well. Margins continue to expand as Delta hits record revenues, with gross margins expanding to 54% in the trailing 12-month period. Free-cash-flow has improved, but sits just shy of 2%. Operating cash flow improved to $6.6 billion for the trailing 12-month period, with Capex hitting $5.5 billion, and expectations to hit $5.0 billion in 2024. Excess cash has been put towards reducing long-term debt which doubled to $36.6 billion during the pandemic and now sits at $27.4 billion. Valuation
Source: Seeking Alpha Most airlines are trading at historically low valuations given the heavy debt they took on during the pandemic, although they are largely back to full capacity. Comparable airlines like United (UAL) trade at a cheaper price-to-cash and price-to-earings ratio, which is interesting since its growth and margins are as good or better than Delta’s. JetBlue (JBLU) and Spirit (SAVE) are in a different boat altogether, with the recent merger between the two blocked by the U.S. government. Growth
Source: Seeking Alpha Delta’s revenue and earnings growth are excellent. Yet, United boasts even better results. Plus, United’s looking at nearly double the sales growth in 2024 as Delta or any of the others. Profitability
Source: Seeking Alpha The one area where Delta beat’s United is on profitability. Although Delta’s gross margin is lower, it’s net income margin is nearly 2x higher than United’s. In fact, despite generating almost the same cash from operations, United is spending nearly $2 billion more in Capex annually. Our Opinion 8/10 We see Delta as an excellent long-term investment. It may take a few years for its current Capex spending to slow down. Once it does, margins should improve as well as free cash flow. Plus, its loyalty program is driving stickier customers that will help it win out over competitors. |
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