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Category: Stock Market and Delta Airlines (DAL)
Date: 17 January 2021 Stock Price of Delta (DAL): $39.98 We take a look at the 4th quarter earnings report of their 2020 fiscal year of Delta Airlines, a U.S global airline company that used to have over 5000 departing flights on a daily basis across the world. For the quarter the group reported revenues of $3.97 billion and reported a loss of -$755 million.
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Our December quarter results capped the toughest year in Delta’s history. I want to thank the Delta people who have risen to the occasion, focusing on delivering results for all of our stakeholders by putting our customers at the center of our recovery - Ed Bastian, Delta’s chief executive officer"
About Delta Airlines (DAL)
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.
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.
Overview of Delta Airlines' 4th quarter 2020 earnings report
Data below is reported for the latest quarter unless stated otherwise
- Revenue: $3.973 billion (down from $11.44 billion for the same quarter of the previous year)
- Revenue decreased by -65% over the last 12 months
- Operating expenses: $4.831 billion (down from $10.040 billion for the same quarter of the previous year)
- Operating expenses decreased by -52% over the last 12 months
- Net loss: -$775 million (down from $1.099 billion for the same quarter of the previous year)
- Diluted loss per share: -$1.19 (down from $1.71 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 635 million (down from 644 million for the same quarter of the previous year)
- Cash and cash equivalents: $8.37 billion
- Cash and cash equivalents per share: $13.18
- Cash and cash equivalents makes up 32.9% of Delta Airlines' market capital
- Cash and cash equivalents makes up 11.5% of Delta Airlines' total assets
- Accounts receivable: $1.396 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' : $1.353 billion
- Stockholders equity per share: $2.13
- So Delta Airlines is trading at 18.7 times its stockholders equity per share. This is well outside the expected range of between 2 and 4 most firms tend to trade at
- For some perspective the average price to book value of firms in the S&P500 is 3.9
- Long term debt of Delta Airlines: $27.4 billion
- Long term debt makes up 38% of Delta Airlines total liabilities
- Cash used by operations of Delta Airlines for the 4th quarter: -$1.28 billion
Delta Airlines' management commentary on their 4th quarter 2020 earnings report
ATLANTA, Jan. 14, 2021 – Delta Air Lines (NYSE:DAL) today reported financial results for the December quarter and full year 2020 and provided its outlook for the March quarter 2021
“Our December quarter results capped the toughest year in Delta’s history. I want to thank the Delta people who have risen to the occasion, focusing on delivering results for all of our stakeholders by putting our customers at the center of our recovery,” said Ed Bastian, Delta’s chief executive officer. “While our challenges continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation.”
“Our December quarter results capped the toughest year in Delta’s history. I want to thank the Delta people who have risen to the occasion, focusing on delivering results for all of our stakeholders by putting our customers at the center of our recovery,” said Ed Bastian, Delta’s chief executive officer. “While our challenges continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation.”
December Quarter Financial Results
• Adjusted pre-tax loss of $2.1 billion excludes nearly $1 billion of items directly related to the impact of, and our response to, COVID-19, including charges associated with employee pay and benefit changes, which were offset by the benefit of the CARES Act payroll support program (PSP) grant recognized in the quarter
• Adjusted operating revenue of $3.5 billion declined 69 percent on 62 percent lower sellable capacity (see Note A) versus the prior year period
• Total operating expense, which includes $930 million of items described above, decreased $5.2 billion over prior year period. Adjusted for those items and third-party refinery sales, total operating expense decreased $4.6 billion or 47 percent in the December quarter compared to the prior year period, driven by lower capacity and revenue-related expenses and strong cost management across the business
• During the December quarter cash burn (see Note B) averaged $12 million per day, marking an approximate 90 percent reduction in cash burn since late March
• At the end of 2020, the company had $16.7 billion in liquidity, including cash and cash equivalents, short-term investments and undrawn revolving credit facilities
Revenue Environment
Delta’s adjusted operating revenue of $3.5 billion for the December quarter was down 69 percent versus the prior year period, a 10-point improvement from September quarter 2020. Passenger revenues declined 74 percent on 62 percent lower sellable capacity. Non-ticket revenues outperformed passenger revenues, with cargo revenues up 10 percent versus the prior year period and total loyalty revenues down 54 percent. For the full year, adjusted operating revenue declined to $15.9 billion, down 66 percent versus 2019, as the global pandemic severely affected air travel. Passenger revenues declined 70 percent on 61 percent lower sellable capacity. Total loyalty revenues were down 51 percent and American Express remuneration declined 30 percent compared to prior year to $2.9 billion. “We see three distinct phases in 2021. The early part of the year will be characterized by choppy demand recovery and a booking curve that remains compressed, followed by an inflection point, and finally a sustained demand recovery as customer confidence gains momentum, vaccinations become widespread and offices re-open,” said Glen Hauenstein, Delta’s president. “For each phase, Delta has the levers to pull to successfully react to the emerging demand environment, including tightly matching our sellable capacity to expected demand.”
Cost Performance
Total adjusted operating expense for the December quarter decreased $4.6 billion or 47 percent versus the prior year period excluding items related to the company’s response to COVID-19 and the $1.4 billion CARES Act benefit, resulting in Delta’s consolidated CASM, adjusted being 4.5 percent lower than the prior year period. This performance was driven by a $1.3 billion, or 64 percent reduction in fuel expense versus the prior year period, a 51 percent reduction in maintenance expense and lower volume- and revenue-related expenses. Salaries and related costs were down 34 percent compared to the prior year period as a result of approximately 20 percent of our workforce, or nearly 18,000 employees, electing to voluntarily depart the company, in addition to the impact of voluntary unpaid leaves, work hour reductions and other cost-saving initiatives. 3 Non-operating expense for the December quarter was up $248 million versus the prior year period, driven primarily by higher interest expense from increased debt the company has incurred during the COVID-19 pandemic.
“We reduced our average daily cash burn to $12 million in the December quarter, a reduction of nearly 90 percent since the early days of the pandemic in March, as we progress to achieving cash breakeven in the spring,” said Gary Chase, Delta’s interim co-chief financial officer. “Remaining agile and disciplined with our cost structure will be key to our success, and when combined with an improving demand environment, will allow us to return to the free cash flow generation needed for debt reduction.”
Balance Sheet, Cash and Liquidity
Delta ended the December quarter with $16.7 billion in liquidity. Cash used in operations during the quarter was $1.3 billion. Daily cash burn averaged $12 million for the quarter, down from $24 million per day in the September quarter. The company anticipates receiving approximately $3 billion from the U.S. Treasury under the PSP extension in the March quarter. With these funds and an estimated $10 to $15 million in average daily cash burn for the March quarter, the company expects to end the March quarter with approximately $18 to $19 billion in liquidity. At the end of the December quarter, the company had total debt and finance lease obligations of $29.2 billion with adjusted net debt of $18.8 billion, $8.3 billion higher year over year. The company’s total debt had a weighted average interest rate of 4.6 percent at year-end. During the quarter, the company repaid $2.6 billion under its revolving credit facilities drawn down in March 2020, $3 billion associated with the 364-day term loan entered into in March 2020 and a $450 million unsecured debt maturity. The company currently has $9 to $10 billion in unencumbered assets, primarily consisting of aircraft, engines and spare parts. At the end of the December quarter, the company’s Air Traffic Liability stood at $4.5 billion, including a current liability of $4.0 billion and a non-current liability of $0.5 billion.
Travel credits represent approximately 65 percent of the Air Traffic Liability at the end of the December quarter. The company refunded more than $3 billion to customers in 2020 and extended the use of certain travel credits through December 2022 to provide additional flexibility to customers.
• Adjusted pre-tax loss of $2.1 billion excludes nearly $1 billion of items directly related to the impact of, and our response to, COVID-19, including charges associated with employee pay and benefit changes, which were offset by the benefit of the CARES Act payroll support program (PSP) grant recognized in the quarter
• Adjusted operating revenue of $3.5 billion declined 69 percent on 62 percent lower sellable capacity (see Note A) versus the prior year period
• Total operating expense, which includes $930 million of items described above, decreased $5.2 billion over prior year period. Adjusted for those items and third-party refinery sales, total operating expense decreased $4.6 billion or 47 percent in the December quarter compared to the prior year period, driven by lower capacity and revenue-related expenses and strong cost management across the business
• During the December quarter cash burn (see Note B) averaged $12 million per day, marking an approximate 90 percent reduction in cash burn since late March
• At the end of 2020, the company had $16.7 billion in liquidity, including cash and cash equivalents, short-term investments and undrawn revolving credit facilities
Revenue Environment
Delta’s adjusted operating revenue of $3.5 billion for the December quarter was down 69 percent versus the prior year period, a 10-point improvement from September quarter 2020. Passenger revenues declined 74 percent on 62 percent lower sellable capacity. Non-ticket revenues outperformed passenger revenues, with cargo revenues up 10 percent versus the prior year period and total loyalty revenues down 54 percent. For the full year, adjusted operating revenue declined to $15.9 billion, down 66 percent versus 2019, as the global pandemic severely affected air travel. Passenger revenues declined 70 percent on 61 percent lower sellable capacity. Total loyalty revenues were down 51 percent and American Express remuneration declined 30 percent compared to prior year to $2.9 billion. “We see three distinct phases in 2021. The early part of the year will be characterized by choppy demand recovery and a booking curve that remains compressed, followed by an inflection point, and finally a sustained demand recovery as customer confidence gains momentum, vaccinations become widespread and offices re-open,” said Glen Hauenstein, Delta’s president. “For each phase, Delta has the levers to pull to successfully react to the emerging demand environment, including tightly matching our sellable capacity to expected demand.”
Cost Performance
Total adjusted operating expense for the December quarter decreased $4.6 billion or 47 percent versus the prior year period excluding items related to the company’s response to COVID-19 and the $1.4 billion CARES Act benefit, resulting in Delta’s consolidated CASM, adjusted being 4.5 percent lower than the prior year period. This performance was driven by a $1.3 billion, or 64 percent reduction in fuel expense versus the prior year period, a 51 percent reduction in maintenance expense and lower volume- and revenue-related expenses. Salaries and related costs were down 34 percent compared to the prior year period as a result of approximately 20 percent of our workforce, or nearly 18,000 employees, electing to voluntarily depart the company, in addition to the impact of voluntary unpaid leaves, work hour reductions and other cost-saving initiatives. 3 Non-operating expense for the December quarter was up $248 million versus the prior year period, driven primarily by higher interest expense from increased debt the company has incurred during the COVID-19 pandemic.
“We reduced our average daily cash burn to $12 million in the December quarter, a reduction of nearly 90 percent since the early days of the pandemic in March, as we progress to achieving cash breakeven in the spring,” said Gary Chase, Delta’s interim co-chief financial officer. “Remaining agile and disciplined with our cost structure will be key to our success, and when combined with an improving demand environment, will allow us to return to the free cash flow generation needed for debt reduction.”
Balance Sheet, Cash and Liquidity
Delta ended the December quarter with $16.7 billion in liquidity. Cash used in operations during the quarter was $1.3 billion. Daily cash burn averaged $12 million for the quarter, down from $24 million per day in the September quarter. The company anticipates receiving approximately $3 billion from the U.S. Treasury under the PSP extension in the March quarter. With these funds and an estimated $10 to $15 million in average daily cash burn for the March quarter, the company expects to end the March quarter with approximately $18 to $19 billion in liquidity. At the end of the December quarter, the company had total debt and finance lease obligations of $29.2 billion with adjusted net debt of $18.8 billion, $8.3 billion higher year over year. The company’s total debt had a weighted average interest rate of 4.6 percent at year-end. During the quarter, the company repaid $2.6 billion under its revolving credit facilities drawn down in March 2020, $3 billion associated with the 364-day term loan entered into in March 2020 and a $450 million unsecured debt maturity. The company currently has $9 to $10 billion in unencumbered assets, primarily consisting of aircraft, engines and spare parts. At the end of the December quarter, the company’s Air Traffic Liability stood at $4.5 billion, including a current liability of $4.0 billion and a non-current liability of $0.5 billion.
Travel credits represent approximately 65 percent of the Air Traffic Liability at the end of the December quarter. The company refunded more than $3 billion to customers in 2020 and extended the use of certain travel credits through December 2022 to provide additional flexibility to customers.
Delta Airlines (DAL) stock chart over the last 5 years
The image below shows the stock price history of Delta Airlines (DAL) over the last 5 years. And its not been a good time for Delta Airlines stockholders with the stock declining by -6.4% over the last 5 years. Not the type of returns investors would like to see but considering the impact of Covid-19 a loss of just 6% over the last 5 years is pretty good going.
The stock of Delta Airlines is trading at close to the midpoint between its 52 week high and 52 week low which is an indication to us that the short term sentiment and momentum of Delta's stock is neutral at this point in time.
The stock of Delta Airlines is trading at close to the midpoint between its 52 week high and 52 week low which is an indication to us that the short term sentiment and momentum of Delta's stock is neutral at this point in time.
Delta (DAL) vs Southwest Airlines (LUV) vs American Airlines (AAL) stock over last 5 years
The image below shows the stock price performance of Delta Airlines (DAL), Southwestern (LUV) and American Airlines (AAL) over the last 5 years. As the image shows its been a pretty horrible time for the stocks of airline companies. Over the 5 year period all three these airline stocks lost investors money. Below the returns of the three airline stocks (sorted from best to worst performer)
- Southwest Airlines: 32%
- Delta Airlines: -6.4%
- American Airlines: -56.8%
Delta Airlines ( DAL) latest stock valuation
So what is Delta Airlines' stock worth based on the release of their 4th quarter 2020 earnings report provided by Delta Airlines? Based on the latest earnings results, and the difficult period ahead for DAL our valuation models provide a target price (full value price) for Delta Airlines at $58.70 a Delta Airlines stock (down slightly from our 3rd quarter 2020 earnings report valuation of Delta Airlines).
We therefore believe that the stock is undervalued at its current price of $39.98
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $58.70. Therefore we see a good entry point into Delta Airlines stock at $52.90 or below. Since Delta Airlines is trading at well below our suggested entry point into the stock we rate Delta Airlines as a buy.
We therefore believe that the stock is undervalued at its current price of $39.98
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target price (full value price) which in this case is $58.70. Therefore we see a good entry point into Delta Airlines stock at $52.90 or below. Since Delta Airlines is trading at well below our suggested entry point into the stock we rate Delta Airlines as a buy.
Next earnings release of Delta Airlines
It is expected that Delta Airlines will release their 1st quarter 2021 earnings report in middle April 2021