Delta Airlines (NYSE:DAL) has been pummeled by the novel coronavirus pandemic. Its business all but collapsed in a matter of weeks. Despite a dramatic decrease in revenue, the company still has 91,000 employees to pay, and a fleet of aircraft to maintain. Given the situation, it’s no shock that that DAL stock has also dropped off a cliff. As of Thursday’s close, it was down 63% from its 2020 high. However, there are signs of relief in the form of the government’s CARES Act, which is providing grants and loans to airlines.
Is it possible the worst of the coronavirus pandemic’s impact on Delta is behind it? If so, DAL stock is pretty tempting at the current discount.
Coronavirus Slammed Delta
The coronavirus pandemic quickly began to take a toll on airlines as international travel bans began to take effect. In early March, companies like Apple (NASDAQ:AAPL) began to restrict employee travel, cutting into business flights. When lockdowns began in U.S. cities, air travel all but stopped.
By early April, the numbers were looking grim for Delta. The company reported it had cancelled 115,000 flights for April — 80% of its total schedule. Flights that remained have been sparsely booked, with demand down 95% compared to this time last year. With over 90,000 employees on its payroll and a fleet of jets to maintain, Delta said it was burning through cash at a rate of $60 million a day. That was despite thousands of those employees taking a voluntary unpaid leave.
The company warned that second-quarter revenue would be down by 90% as a result.
Airlines Get Federal Aid
Delta quickly took measures to keep its operations going. This included borrowing $3 billion from an existing revolving loan, and taking out a new loan for $2.6 billion.
However, all airlines were also lobbying for government aid. That came in the form of the CARES Act. The coronavirus stimulus package included $25 billion in federal aid earmarked to help airlines continue paying their staff through September.
On April 14, Delta’s share of the aid was reported to be $5.4 billion. The breakdown is a $3.8 billion grant, and a $1.6 billion low interest loan. In addition, Delta has agreed to give the federal government warrants for roughly 1% of its stock.
Delta’s CEO told Time that between the CARES Act Aid, the cutting of 80% of its schedule and having 35,000 employees take voluntary unpaid leave, the airline will be able to continue operating a minimal schedule to support necessary air travel.
DAL stock saw a small pop on the news of the federal aid.
Bottom Line on DAL Stock
Delta continues to make moves to ensure its liquidity. Even as it was negotiating the terms for CARES Act funding, the company was working on an aircraft leaseback deal. Bloomberg reports that the airline has signed an agreement that will see it sell a number of its planes, then immediately lease them back — netting $1 billion in much-needed cash.
Is DAL stock a “screaming buy” at this point? Its Thursday close of $22.78 was down 63% from DAL’s 2020 high. You have to go back to 2013 to find it trading at these levels.
On March 20, it was priced slightly lower (it closed at $21.35), but that was at the height of a record-setting market selloff. The coronavirus situation hasn’t gotten any better since then, but Delta has secured a financial lifeline to help carry it through to the fall.
The Wall Street Journal’s investment analysts have DAL stock as a consensus buy at this point. And their average 12-month price target of $42.19 reflects a belief that even if “business as usual” and a return to regular commercial flying isn’t just around the corner, Delta Airlines is going to recover from this mess. And if they’re right, that price target offers a tempting 85% upside.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, he did not hold a position in any of the aforementioned securities.
