Key Stats for Delta Air Lines, Inc.
Well Buffett likes it, shouldn't you?
| Ticker | DAL |
|---|---|
| Sector | Airlines |
| Latest price | $50.93 |
| Value | $38,142M |
| Daily vol | $283M |
| Date | 11 January 2017 |
Useful Links
- Latest news from Google Finance and Yahoo Finance
- Latest results from SEC Edgar
- Website: http://www.delta.com/
Description
Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo throughout the United States and around the world. We all knew that!
What was a surprise to me is the that there are two business units, an airline and... a refinery! Sure the airline does it all, domestic, cargo, private, airmiles deals with AMEX, partnerships with KLM Air France, Virgin Atlantic, etc, etc.
But a refinery... well... given how much fuel they buy, I suppose it makes sense!
A refinery?
Let's start with the overall business. They reported $41bn of sales in 2015. $35bn of Passenger revenue, $1bn of cargo, and $5bn of Other.
But there is some accounting magic going on here...as in the segmental analysis they show the following $40bn sales by the airline segment; $5bn by the refinery, and a -$4bn intersegment item.
So even though the Refinery is 10% of sales, it's just netted out. If dig further, you'll see that of $7.8bn in operating profit, $7.5bn came from the airline segment.
So... maybe it's just trivia and we should focus on the airline. If you do, the $41bn in sales is split into $29bn US domestic routes; $7bn on trans-Atlantic traffic; $4bn on Pacific routes, and LatAm just $3bn. Oh, it's the domestic US business that's been growing.
Recent financials
So the top line looks sweet, but the bottom line a total mess. And you won't be surprised that the oil price has a lot to do with it.
| Metric | 2015A | 2014A | 2013A | 2012A | 2011A |
|---|---|---|---|---|---|
| Revenue | $41bn | $40bn | $38bn | $37bn | $35bn |
| EPS | $5.63 | $0.78 | $12.29 | $1.19 | $1.01 |
But there is more to it than the oil price. $DAL does a lot of "hedging". Now, forgive me for being surprised, but shouldn't hedging smooth your earnings?
| Metric | 2015A | 2014A |
|---|---|---|
| Actual pre-tax income | $7bn | $1bn |
| Hedging / etc | -$1bn | $2bn |
| Other | $0bn | $1bn |
| Adjusted pre-tax | $6bn | $5bn |
Sure the "adjusted" figures are smooth, but that's not the aim is it? Though it does help us work out potential long-term earnings!
Competition
Is it the domestic market that's most important?
Our domestic operations are subject to competition from traditional network carriers, including American Airlines and United Airlines, national point-to-point carriers, including Alaska Airlines, JetBlue Airways and Southwest Airlines, and discount carriers.
Internationally, their biggest bugbear are the Middle Eastern carriers that are using government backing to build their long-distance services.
Competition side, margins look nice generally, and versus $AAL and $UAL in particular. And if we look internationally, you gotta shed a tear for the French and Germans!
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Delta Air Lines, Inc. | $39,683M | 25% | 41% |
| Alaska Air Group, Inc. | $5,784M | 31% | 34% |
| American Airlines Group Inc | $40,022M | 22% | 139% |
| Hawaiian Holdings, Inc. | $2,392M | 25% | 52% |
| Southwest Airlines Co | $20,326M | 25% | 30% |
| United Continental Holdings Inc | $36,540M | 20% | 33% |
| Ryanair Holdings plc (ADR) | $6,994M | 29% | 41% |
| Air France KLM SA (ADR) | $26,495M | 8% | N/A |
| Deutsche Lufthansa AG (ADR) | $33,371M | 10% | 35% |
Cash / Debt?
Delta Air Lines, Inc. has $4,413M of net debt. That is 0.4x it's latest operating profit. So nothing much to worry about.
Plus they tout that they are paying off debt, buying back shares, i.e. reducing their capital base, even though they are increasing cashflows. No wonder Buffett likes them.
Wall Street thinks?
The professionals on Wall Street have a $59.07 for Delta Air Lines, Inc. and their recommendation to clients is Buy. That implies an upside of 16% to their target.
Valuation
10 time earnings? For a business that's growing at the top line, improving margins, churning off cash and focused on improving returns.
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| DAL | $38,142M | 10x | 11% | 1% | 18% |
| ALK | $11,341M | 13x | 10% | 1% | 12% |
| AAL.O | $25,119M | 9x | -18% | 1% | n/a |
| HA.O | $3,016M | 11x | 16% | 0% | 12% |
| LUV | $31,605M | 14x | 10% | 1% | 11% |
| UAL | $23,371M | 9x | -13% | 0% | n/a |
| RYAAY.O | $19,305M | 14x | 11% | 0% | 9% |
| AFLYY.PK | $1,594M | 3x | -3% | 0% | n/a |
| DLAKY.PK | $5,779M | 4x | -13% | 4% | n/a |
What am I missing?
Dividends
Delta Air Lines, Inc. is forecast to pay a dividend of $0.69 per share, compared with a forecast EPS of $5.32.
Catalysts
In the last 3 months the stock price has moved by 30% that compares with a change in the earnings forecasts of -6%. Must be the Buffett effect that.
Though looking at the last nine months, even though sales were off 3%, profits were up 6%.
On the management team's latest call with Wall Street brokers, they gave a mixed view on the 4th quarter and outlook but again, made music for folks like Buffett
We generated $1.1 billion of free cash flow and returned $650 million to our shareholders during the quarter. That brings the total amount of cash we have returned to our owners year-to-date to $2.7 billion which already exceeds the level returned during all of 2015. We remain on track to meet our goal of returning at least 70% of our free cash flow this year to our owners.
With the stock going from 7x to 10x earnings in the last 3 months, the value investor's been rewarded. Feels like now it's time to reward the long-term patient investor as the cashflow comes thro'.
So, do you think like a Buffett?
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted January 11, 2017 at 10:26AM by shane_stockflare http://ift.tt/2jDLcJR
