Will the Delta share recover with state support in place?

<p>Delta Airlines (NYSE: DAL) has been hit by the new coronavirus pandemic. Its business almost collapsed in just a few weeks. Despite a dramatic reduction in revenue, the company still has 91,000 employees to pay and an aircraft fleet to maintain. Given the situation, it is no shock that the DAL share has also lost a rock. As of Thursday’s closure, it was 63% lower than in 2020. However, there are signs of relief in the form of the government’s CARES Act, which provides grants and loans to airlines.

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Is it possible that the worst of the coronavirus pandemic’s impact on Delta is behind it? In that case, DAL shares are quite tempting with the current discount.

Coronavirus beat Delta

The coronavirus pandemic quickly began to take its toll on airlines as international travel bans began to take effect. In early March, companies such as Apple (NASDAQ: AAPL) began limiting employee travel and reducing their business flights. When shutdowns began in American cities, air travel almost ceased.

At the beginning of April, the figures looked bleak for Delta. The company reported that it had canceled 115,000 flights in April – 80% of the total schedule. Trips that have been left have been sparsely booked, with a demand of 95% compared to this time last year. With over 90,000 salaried employees and a fleet of jets to maintain, Delta said it burned cash at $ 60 million a day. This is despite the fact that thousands of employees took voluntary unpaid leave.

The company warned that revenues during the second quarter would decrease by 90% as a result.

Airlines receive federal support

Delta quickly took steps to keep its business going. This included borrowing $ 3 billion from an existing revolving loan and taking out a new $ 2.6 billion loan.

But all airlines also lobbied for state aid. It came in the form of the CARES Act. The coronavirus stimulus package includes $ 25 billion in federal aid earmarked to help airlines continue to pay their staff until September.

On April 14, Delta’s share of the support was reported at $ 5.4 billion. The distribution is a contribution of 3.8 billion dollars and a 1.6-billion dollars with low interest rates. In addition, Delta has agreed to provide the federal government with warrants for approximately 1% of its stock.

Delta’s CEO told Time that between CARES Act Aid, the 80% cut in its schedule and 35,000 employees taking voluntary unpaid leave, the airline will be able to continue operating a minimum schedule to support necessary air travel.

The DAL share saw a small pop on the news about federal aid.

Conclusion on DAL stock

Delta continues to take measures to ensure its liquidity. Even when negotiating the terms of financing the CARES Act, the company was working on a return agreement for aircraft. Bloomberg reports that the airline has signed an agreement which means that it sells a number of its aircraft and then immediately leases them back – a net $ 1 billion in much-needed cash.

Is the DAL share a “screaming buy” right now? Its Thursday end of $ 22.78 was 63% lower than DAL’s 2020 peak. You have to go back to 2013 to find the trade at these levels.

On March 20, the price was slightly lower (it closed at $ 21.35), but it was at the height of record market sales. The coronavirus situation has not improved since then, but Delta has secured an economic lifeline to help implement it by the autumn.

Wall Street Journal’s investment analysts have DAL shares as a consensus purchase right now. And their average $ 42.19-month price target reflects a belief that while “business as usual” and a return to regular commercial flight are not just around the corner, Delta Airlines will recover from this mess. And if they are right, that price target offers a tempting 85% uptrend.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a leading contributor focusing on consumer technology for Forbes since 2015. At the time of writing, he had no position in any of the above. securities.