Delta Air Lines, Inc. (DAL): France Grounds Delta Stock for Now

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It is hard to consider the stock market woefully overvalued when there are so many stocks, even sectors, selling at such bargain prices. One such sector is the airlines. Delta Air Lines, Inc. (NYSE:DAL) reported announcing earnings this week — $1.5 billion or $1.47 per fully diluted share, beating analyst estimates by 5 cents, on revenue of $10.4 billion — that gave Delta stock a nice bump on Thursday.

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Source: via Delta

However, Delta stock was back down in Friday’s morning trade, the result of a terrorist attack in Nice, France, that many now fear will cut travel and tourism. It was a full reversal over the previous day’s optimism in DAL.

Delta Stock: The Ultimate Fear Value

Fear is the airlines’ enemy. Fear of bankruptcy, fear of disruption, fear of unionized employees and competitors benefiting from government support, and of course fear of terrorism.

Right now, this means you can buy Delta stock for less than 7 times earnings. The whole group is in the same doldrums. You can buy Alaska Air Group, Inc. (NYSE:ALK) for 9.4 times earnings. JetBlue Airways Corporation (NASDAQ:JBLU) is at 8.5 times earnings. Southwest Airlines Co (NYSE:LUV) — long considered the best-run of the major U.S. carriers, and one that would seemingly be immune to the French concerns given its domestic route structure — is available today for 12.7 times earnings. This in a market where the average P/E is 18.

All the airlines listed in the paragraph above are well-regarded, with good management. Airlines that are not so well-regarded are being treated like wallpaper. American Airlines Group Inc (NASDAQ:AAL) is selling for 3.2 times earnings. United Continental Holdings Inc. (NYSE:UAL) is selling at 2.5 times earnings.

These kinds of values are not new. The airlines did get some gains early in the decade, after having gone through a near-death experience in the 2000s that drove most into bankruptcy (including Delta) and from which some, like American and United, are still recovering. But Delta has now been issuing a dividend since 2013, which has more than doubled since then and is now at 14 cents per share, yet since the start of 2015 the shares are actually down, by nearly 20%.

A Long-Term Bull Case

Delta management has been doing all it could against the losing streak. It has kept a good handle on expenses, and is running planes that are, on average, 85% full. Delta recently said it was ahead of schedule on the repurchase of $5 billion in Delta stock, on a $32 billion market cap.

No trend is forever. Everything reverts, in time, to a mean. Delta has been operated well for nearly a decade now, since its merger with Northwest in 2008 made it the world’s largest carrier. It is hard for me to see the stock falling far from here, so your risk in owning Delta stock seems minimal.

On the other hand, it’s possible I’m trying to argue with myself in this story.

I bought into DAL a year ago for my retirement account and I’m sitting on a loss of 10%, less reinvested dividends. Yet I can’t find a reason to pull the trigger and take the loss. I think we’re closer to the end of the terrorist threat than the beginning, and once people realize this the airlines are going to fly again.

Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long DAL.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/dal-delta-stock-france/.

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