Delta Still a Strong Pick Despite Uptick in Covid-19 Cases

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Since I last wrote about Delta (NYSE:DAL) and DAL stock in late May, it rose from around $20 to roughly $28 per share. I rated it as a buy then, which was an easy pick given the environment and Delta’s liquidity levels at that time.

delta (dal stock) airlines plane
Source: Markus Mainka / Shutterstock.com

Investors who worry that any appreciation has lost steam shouldn’t worry too much. Delta shares will continue to rise although second-quarter earnings will be bleak. Long-term investors should continue to view the company as one with positive momentum heading into, and out of, the novel coronavirus pandemic. 

DAL Stock Q2 Earnings Beat?

It will be no surprise when Delta reports a year-over-year earnings decline. Inventors will be interested to know that the magnitude of that expected loss has been declining.

In the previous month analysts revised the loss expectation to be roughly 18% lower than expected. Analysts expect Delta to post an EPS loss of $4.21. The company remains a buy-and-hold candidate in my eyes. The company has lots of liquidity to counterbalance ongoing cash burn even in the face of the recent outbreaks of Covid-19 cases. 

Analysts are currently bullish on DAL shares. Nine rate it as a buy, and seven a hold. None are rating it a sell. Analyst consensus is that shares are overweight. Their average price target is $36.31.

So, from the current price there is room to appreciate. Investors should also expect that there is significant variation among those analysts’ projections given the pandemic. Variation in that guidance ranges from a low of $21 to a high of $47. But the thrust of their predictions is positive. 

Delta Can Sustain Itself

Delta does have sufficient liquidity as a bulwark against a continued gutting of air traffic demand. However, operators must remain hyper-vigilant against outbreaks capable of inflicting further serious material losses in the extremely hard-hit airline sector.

Carriers are constantly balancing positive news against the negative and adjusting.

In light of this, United Airlines’ (NASDAQ:UAL) warning about recent outbreaks dampening a rebound in flight traffic is worrisome. There is some degree of herd immunity and reports suggest that people have become less fearful of this virus as time passes. But airlines are in need of a vaccine. 

Airlines Really Need a Vaccine

And on that front there has been some positive news. Regeneron (NASDAQ:REGN) and Novavax (NASDAQ:NVAX) received $450 million and $1.6 billion from the federal government to fund vaccine trials and manufacturing. The $1.6 billion the federal government gave to Novavax will be used to fund clinical trials and for manufacturing. Novavax stated it will deliver 100 million doses of its vaccine in the U.S. by year end. 

The federal government awarded Regeneron the $450 million contract to manufacture thousands of doses of its Covid-19 treatment. Should Regeneron’s experimental vaccine prove effective and gain regulatory approval, it will be distributed to the public free. Shares of Regeneron rose 3.5%, with Novavax’s shares rising by 29%.

Should Investors Sell DAL Stock?

All of these factors affect Delta directly. But the takeaway here is that not much has changed: the pandemic situation is highly fluid.

Delta is in good position financially to continue to stand tall against this challenge. The federal government is funding more new vaccine trials which we can all collectively hope turn out positive. The newest virus outbreaks are disheartening, but fundamentally DAL shares are still poised for a return.

Despite whatever happens with Q2 earnings news, Delta should be fine. There is still plenty of room to make money with this stock.  

As of writing, Alex Sirois does not own any of the aforementioned stocks.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/delta-still-a-strong-pick-despite-uptick-in-covid-19-cases/.

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