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Category: Southwest Airlines (LUV), Delta (DAL) and American Airlines (AAL)
Date: 23 July 2020 Stock price of Southwest Airlines: $33.11 Stock price of Delta Airlines: $26.95 Stock price of American Airlines: $11.88 So following the latest earnings report of three of the major US airlines we have decided to have our second airline fly off article in which we compare the stock performance of Southwest, Delta and American Airlines as well as their latest earnings report in order to identify which stock is best placed to provide investors with superior returns in coming years.
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We believe the stock of American Airlines (AAL) has been hit the hardest due to the fact that their cash position is so weak, relative to the other two airlines, the worst the cash position the worst the stock price performance. As the best cash positioned airline in the analysis, Southwest had the best stock performance over the last 3 years as shown above."
About Southwest Airlines
In its 49th year of service, Dallas-based Southwest Airlines Co. (NYSE: LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 60,000 Employees to a Customer base topping 130 million passengers annually. Southwest became the nation’s largest domestic air carrier in 2003 and maintains that ranking based on the U.S. Department of Transportation’s most recent reporting of domestic originating passengers boarded. In peak travel seasons, Southwest operates more than 4,000 weekday departures among a network of 101 destinations in the United States and 10 additional countries.
Southwest coined Transfarency® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances), and there are no change fees, though fare differences might apply.
Southwest is committed to returning value to its Shareholders. Since 2010, Southwest has returned more than $11.7 billion to Shareholders through share repurchases and dividends, through September 30, 2019. In the first nine months of 2019, Southwest returned $1.8 billion to Shareholders through the repurchase of $1.45 billion in common stock and the payment of $372 million in dividends.
Overview of Southwest Airlines latest earnings report
Southwest coined Transfarency® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances), and there are no change fees, though fare differences might apply.
Southwest is committed to returning value to its Shareholders. Since 2010, Southwest has returned more than $11.7 billion to Shareholders through share repurchases and dividends, through September 30, 2019. In the first nine months of 2019, Southwest returned $1.8 billion to Shareholders through the repurchase of $1.45 billion in common stock and the payment of $372 million in dividends.
Overview of Southwest Airlines latest earnings report
- Revenues: $1.008 billion (down from $5.909 billion for the same period of the previous year)
- Revenues decreased by-82.9% over the last 12 months
- Operating expenses: $2.135 billion (down from $4.941 billion for the same period of the previous year)
- Operating expenses decreased by -56.8% over the last 12 months
- Net loss: -$915 million (down from $741 million from for the same period of the previous year)
- Diluted loss per share: -$1.63 (down from $1.37 for the same period of the previous year)
- Diluted weighted-average shares outstanding: 563 million (down from 542 million for the same period of the previous year)
- Cash and cash equivalents: $12.351 billion
- Cash and cash equivalents per share: $21.93
- Cash and cash equivalents makes up 66.2% of Southwest Airlines market capital
- Cash and cash equivalents makes up 34.7% of Southwest Airlines total assets
- Cash and cash equivalents per share: $21.93
- Flight equipment: $20.943 billion
- Stockholders equity in Southwest Airlines: $10.878 billion
- Stockholders equity per Southwest Airlines share: $19.32
- Southwest Airlines is trading at 1.71 times its stockholders equity per share which is just within the expected range of between 2 and 4 that most firms tend to trade at
- Stockholders equity per Southwest Airlines share: $19.32
- Cash provided operations: $897 million
- Cash generated from operations per share: $1.59
About Delta Airlines
Delta Air Lines (NYSE: DAL) is the U.S. global airline leader in products, services, innovation, reliability and customer experience. Powered by its 80,000 people around the world, Delta continues to invest in its people, improving the air travel experience and generating industry-leading shareholder returns. Headquartered in Atlanta, Delta offers more than 5,000 daily departures and as many as 15,000 affiliated departures including the premier SkyTeam alliance, of which Delta is a founding member. Delta serves nearly 200 million people every year, taking customers across its industry-leading global network to more than 300 destinations in over 50 countries.
Quick facts about Delta Airlines (DAL)
Quick facts about Delta Airlines (DAL)
- Revenue: $1.47 billion (down from $12.53 billion for the same quarter of the previous year)
- Revenue decreased by -88% over the last 12 months
- Operating expenses: $6.283 billion (down from $10.408billion for the same quarter of the previous year)
- Operating expenses decreased by -40% over the last 12 months
- Net loss: -$5.7 billion (down from $.433 billion for the same quarter of the previous year)
- Diluted loss per share: -$9.01 (down from $2.21for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 635 million (down from 652 million for the same quarter of the previous year)
- Cash and cash equivalents: $11.366 billion
- Cash and cash equivalents per share: $17.89
- Cash and cash equivalents makes up 68.8% of Delta Airlines' market capital
- Cash and cash equivalents makes up 15.72% of Delta Airlines' total assets
- Accounts receivable: $1.375 billion
- Accounts receivable makes up 1.9% of Delta Airlines' total assets
- Goodwill: $9.753 billion
- Goodwill makes up 13.5% of Delta Airlines' total assets
- Goodwill per Delta Airlines stock: $15.36
- Stockholders equity of Delta Airlines' : $8.690 billion
- Stockholders equity per share: $13.68
- So Delta Airlines is trading at 1.9 times its stockholders equity per share. This is within the expected range of between 2 and 4 most firms tend to trade at
- Long term debt of Delta Airlines: $19.413 billion
- Long term debt makes up 30.5% of Delta Airlines total liabilities
More About American Airlines (AAL)
American Airlines and American Eagle offer an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries. American has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. American is a founding member of the oneworld® alliance, whose members serve more than 1,000 destinations with about 14,250 daily flights to over 150 countries. Shares of American Airlines Group Inc. trade on NASDAQ under the ticker symbol AAL. In 2015, its stock joined the S&P 500 index
Overview of American Airlines latest earnings report:
Overview of American Airlines latest earnings report:
- Revenue: $1.622 billion (down from $11.960 billion for the same quarter of the previous year)
- Revenue decreased by -86.4% over the last 12 months
- Total operating expenses: $4.108 billion (down from $10.807 billion for the same quarter of the previous year)
- Total operating expenses decreased by -62% over the last 12 months
- Net loss: -$2.067 billion (down from $185 million for the same quarter of the previous year)
- Diluted loss per share: -$4.82 (down from $1.49 for the same quarter of the previous year)
- Weighted average shares outstanding-diluted: 428.807 million (down from 445.587 million for the same quarter of the previous year)
- Cash and equivalents: $462 million
- Cash and cash equivalents per share: $1.07
- Cash and cash equivalents makes up 0.72% of the American Airlines' total assets
- Cash and cash equivalents makes up 9.4% of American Airlines' current market capital
- Cash and cash equivalents per share: $1.07
- Accounts and notes receivable: $879 million
- Accounts and notes receivable makes up 1.4% of the group's total assets
- Long-term debt and finance leases, net of current maturities: $28.698 billion
- Long-term debt and finance leases, net of current maturities increased by 33.7% over the last 12 months
- The continued increase in debt and finance leasing is taken up to ensure the group can stay afloat considering that they burnt through roughly $55 million a day. During June however the cash burn rate per day was sitting at $30 million
- Goodwill of American Airlines: $4.091 billion
- Goodwill makes up 6.3% of American Airlines total assets
Stock price history of Southwest (LUV), Delta (DAL) and American (AAL) over last 3 years
The image below shows the stock price history of Southwest Airlines (LUV), Delta Airlines (DAL) and American Airlines (AUAL) over the last 3 years. And as it shows its been a very volatile time for the airline companies stockholders. Over the 3 year period the various airline stocks provided the following returns.
- Southwest Airlines (LUV) : -39.6%
- Delta Airlines (DAL): -47.5%
- American Airlines (UAL): -76.3%
So which airline comes out on top?
One of our key metrics is the Price to Stockholders equity per share ratio. When looking at this we find the following:
Based on this metric Delta offers far more value than Southwest and American Airlines. Most firms tend to trade at a ratio of between 2 and 4 times its stockholders equity per share. What it shows that if a firm was to be liquited now, all assets sold, liabilities paid and the rest paid out to stockholders, that amount is expressed as a ratio to the stock price.
Next up cash as percentage of stock price:
Next up lets take a look at the percentage cash on the balance sheet makes up of each group's total assets:
We believe the stock of American Airlines (AAL) has been hit the hardest due to the fact that their cash position is so weak, relative to the other two airlines, the worst the cash position the worst the stock price performance. As the best cash positioned airline in the analysis, Southwest had the best stock performance over the last 3 years as shown above.
- Price/Stockholders equity per share for Southwest Airlines (LUV): 1.71
- Price/Stockholders equity per share for Delta Airlines (DAL): 1.9
- Price/Stockholders equity per share for American Airlines (AAL): American Airlines is trading at stockholders deficit so this ratio cannot be calculated for the group
Based on this metric Delta offers far more value than Southwest and American Airlines. Most firms tend to trade at a ratio of between 2 and 4 times its stockholders equity per share. What it shows that if a firm was to be liquited now, all assets sold, liabilities paid and the rest paid out to stockholders, that amount is expressed as a ratio to the stock price.
Next up cash as percentage of stock price:
- Cash as percentage of stock price for Southwest Airlines (LUV): 66.2%
- Cash as percentage of stock price for Delta Airlines (DAL): 68.8%
- Cash as percentage of stock price for American Airlines (AAL): 9.4%
Next up lets take a look at the percentage cash on the balance sheet makes up of each group's total assets:
- Cash as percentage of total assets for Southwest Airlines (LUV): 34.7%
- Cash as percentage of total assets for Delta Airlines (DAL): 15.7%
- Cash as percentage of total assets for American Airlines (AAL): 0.72%
We believe the stock of American Airlines (AAL) has been hit the hardest due to the fact that their cash position is so weak, relative to the other two airlines, the worst the cash position the worst the stock price performance. As the best cash positioned airline in the analysis, Southwest had the best stock performance over the last 3 years as shown above.
Lets look at the horrible declines reported in revenues by the three airline groups (compared to the same quarter of the previous year):
Daily cash burn rate:
So taking all of the above into consideration which one of these airline stocks is set to outperform its peers in coming years due to its better financial position and their current stock price? Based on all the above we rate the stock of Southwest as the WINNER, as their revenues declined the least, they have the best Price/Stockholders equity ratio and their cash position (cash as percentage of total assets) is by far the strongest, making them the least likely to borrow money or issue stock to raise money to stay afloat during the Covid-19 pandemic. And their cash burn rate is the lowest, granted they are the smallest of the three airlines we looked at in this article
- Cash as percentage of total assets for Southwest Airlines (LUV): -82.9%
- Cash as percentage of total assets for Delta Airlines (DAL): -88%
- Cash as percentage of total assets for American Airlines (AAL): -86.4%
Daily cash burn rate:
- Southwest Airlines (LUV): $13 million
- Delta Airlines (DAL): $27 million
- American Airlines (AAL): $30 million
So taking all of the above into consideration which one of these airline stocks is set to outperform its peers in coming years due to its better financial position and their current stock price? Based on all the above we rate the stock of Southwest as the WINNER, as their revenues declined the least, they have the best Price/Stockholders equity ratio and their cash position (cash as percentage of total assets) is by far the strongest, making them the least likely to borrow money or issue stock to raise money to stay afloat during the Covid-19 pandemic. And their cash burn rate is the lowest, granted they are the smallest of the three airlines we looked at in this article