Should You Still Fly Delta Air Lines?

Delta Air Lines (DAL) has been in fine form on the stock market in the past year as its stock has gained more than 25%. Looking ahead, the analyst sentiment around Delta looks positive, while the company is also taking steps to improve its financial profile. Let’s take a look.

Strengthening its profile

Delta is committed towards achieving investment grade credit rating by S&P which is just one grade above its current rating. It has uniquely achieved about $10 billion of debt control since past five years and moving forward to achieve $4 billion of long-term non-GAAP total debt objective.
Delta has declared a new $5 billion of share repurchase program till 2017 and forecasts to return a minimum of 50% of free cash flows to the key stakeholders till debt target gets achieved.

The key airlines is expected to be targeted towards minimizing debt level on its balance sheet in order to preserve cash flows for future growth investments while delivering enhanced shareholder returns.

Moreover, the stock performance of Delta Airlines as compared to its peers and the industrial S&P 500 index is superior, allowed by its robust financial performance and profitable capital allocation strategy which has resulted in significant appreciation of its share price and much ahead of the key competitors since the past several years.

Positive analyst sentiment

The consensus estimate among 17 polled investment analysts evaluating Delta Air Lines indicates that it is a stock that investors should buy. For instance, The Street rates Delta Air Lines as a “Buy” with a ratings score of A+. The reason behind The Street’s positive rating is a result of strength in key areas. These include the company’s strong top line growth, improving profit margins, and higher cash flow generation.

Conclusion

All in all, investors can go long Delta Air Lines as it has attractive trailing P/E and forward P/E ratios. Its trailing P/E multiple is 21.49, while the forward P/E multiple comes to 8.55. However, Delta Airlines needs to work on its debt-burdened balance sheet. It has a total debt of $9.27 billion, while the cash position is weaker at just $3.79 billion only. But, due to its cost-reduction moves, the company will be able to improve its financial performance going forward.
Published on Nov 2, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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