With Delta’s (NYSE:DAL) cash burn well under control, airline travel still poised to rebound over the holidays compared with previous months, and vaccines for the coronavirus on the way soon, I remain bullish on DAL stock.
Meanwhile, the shares are only about 10% above their September highs and are still nearly 40% below their 52-week high, and I continue to believe that investors are underestimating the extent to which the vaccines’ launch will prompt a quick, massive rebound in air travel.
Travel Is Still Poised to Rebound
On Nov. 10, Delta reported that its cash burn would be just $10 million to $12 million per day in the fourth quarter and $10 million per day in December. Expecting to have liquidity of about $16 billion at the end of the year, Delta remains unlikely to have liquidity issues anytime soon.
Additionally, there’s a good chance that Congress will provide additional funding to the airlines, including Delta, in February.
On the travel front, Aviation Pros reported on Nov. 13 that, during the Thanksgiving holiday “airlines expect a slight increase in traffic over the last eight month but nothing close to past years.” Still, that “slight” increase over the last eight months, which is likely to be repeated over the holiday season, should help Delta’s financial results.
The idea of airline traffic increasing during the holiday season, despite the recent sharp increase in cases of the coronavirus in the U.S., correlates with anecdotal evidence I’ve seen on social media. Specifically, in recent weeks, many people on Twitter (NYSE:TWTR) on have been noting that healthy people younger than 60 are highly unlikely to die from the disease, and many are commenting that they intend to celebrate Thanksgiving and Christmas the same way as in past years.
Also likely to boost air travel is a Harvard study that “found little evidence of in-flight transmission since mask mandates were implemented in spring and rated the risk of disease transmission on planes below that of grocery shopping or eating out,” according to The New York Times.
And finally, Delta is the only one of the four biggest airlines in the U.S. to commit to leaving the middle seats open on all of its flights during the holiday season. That could wind up making Delta more popular than its peers in the coming weeks.
Underestimating the Vaccines’ Impact
Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) are applying to the FDA for emergency use authorization and the agency is expected to approve the shots next month. In December, 20 million adults are expected to be vaccinated. If 30 million American adults are vaccinated in each of the following two months (January and February), the vast majority of the most vulnerable Americans, and around a third of all U.S. adults, will have been vaccinated by the beginning of March.
As a result, by the middle of March, the daily totals of people dying from the coronavirus should plunge, resulting in much less onerous restrictions and closures. Further, many of those who will have been vaccinated will be looking to fly places. And by the middle of Q2, many non-vulnerable people are likely to be vaccinated, causing more pent-up demand for flying to be unleashed.
Taken together, these trends should result in stronger, profitable Q2 and Q3 results for Delta, meaningfully boosting DAL stock above its current levels.
The Bottom Line on DAL Stock
The valuation of the shares remains low, while the company has plenty of cash and should get a small lift from the holiday season and a big boost from the vaccines. Therefore, longer-term investors should buy Delta’s stock.
On the date of publication, Larry Ramer held a long position in Moderna.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.