Avoid chasing Delta Airlines after stock market price

<p>Speculators who invested in the airlines’ stocks in March had to wait until last week until the trade yielded results. Encouragement for increased flight bookings and passenger traffic to rewarded Delta Airlines (NYSE: DAL) shareholders. DAL shares also have values ​​that are too convincing to ignore. This may explain why the last meeting was developed.

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How about Delta? The short-term outlook still looks bad, although bookings are slowly improving.

DAL stock lift of flight schedule

In early May, Delta consolidated various operations in the United States served by several airports. This will adapt the range of flights to weaker demand but would maintain the aircraft’s connection. The company already planned to add more flights to its schedule in Atlanta and New York. It also planned to increase its services in the Caribbean and Latin America. But most importantly, Bill Lentsch, Delta’s head of customer experience, said that “our survey data showed a clear desire for these kits and we have a bias towards action when we see new trends emerge.”

The inevitable recovery in passenger volumes, even if they are at a fraction of last year’s level, will pose a major problem for airlines. Travelers must wear a mask while on board but maintaining social distance will still be a challenge for everyone. Delta can lead the initiative to hold disinfected flights between flights. For example, it can use ultraviolet light and scrub the interior of the plane. The airline’s staff will always wear protective equipment and masks and minimize close contact with passengers.

Excessive speculation

The 88% return in LATAM Airlines (NYSE: LTM) last week indicates that excessive speculation in the sector only lifted values ​​at the moment. Amateur buyers who do not know what bankruptcy means bought LTM shares. When the company files for bankruptcy, the shareholders get nothing back. Conversely, markets may speculate that a delay in submission by at least July will increase the odds of a rescue from Brazil. Brazil’s currency is still collapsing and the country has too much debt to help the airline.

Delta and the Brazilian transport company signed a trans-American joint venture agreement earlier in May. The deal gives its customers connected flights between Delta and LATAM flights to hub airports where the two airlines are co-located.

Valuation

Wall Street analysts have a price target of $ 36 on Delta shares (per Tipranks). Support for that price target is the share’s deep valuation score of 88/100:

DAL Industry S&P 500 Value Points 88 70 73 Price / Result 6.4 – 27.5 Price / Sales 0.5 0.3 2.3 Price / Free cash flow 9.5 10 21.9 Price / Book 1.5 1, 3 3.8

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Even after last week’s strong bounce, Delta is trading at a sharp discount compared to the S&P 500 index. The stock market is still pricing a weak recovery in revenue and investors expect the company to continue to lose money. The stock is of high quality, even if the gross margins follow the index.

DAL Industry S&P 500 Quality Score 82 55 79 Gross margin 19.90% 20.80% 29.10% Operating margin 11.50% 6.10% 13.20% Net margin 7.80% 1.50% 8.70%

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Investors can not expect profitability to recover until passenger traffic recovers to at least 25-50% from the previous year’s levels. Delta founded most of its plans and reduced operating costs and staff. So if demand picks up speed at a faster pace, the company can quickly increase supply to match demand.

Avoid chasing

Investors who invest in Delta’s rebound a few weeks ago will receive money on the reward now. Those who missed the rally should avoid chasing the stock.

The airline will publish another ugly loss in the next quarterly report. However, if bookings are constantly increasing, Delta may have enough data to establish revenue guidance for the rest of the year. It only helps the stock to maintain its levels.

Chris Lau, Contributing Writer for InvestorPlace.com and many other financial sites. Chris has over 20 years of investment experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace at Seeking Alpha. He shares his stock choices so that readers get original insights that help improve return on investment.