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Category: Stock Market and Delta Airlines
Date: 21 October 2020 Stock Price of Delta: $31.98 We take a look at the 3rd 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. But with the Covid-19 pandemic spreading across the world flights both locally and internationally has basically ground to a halt, leading to serious worries about whether airline companies can survive the current operating environment.
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While our September quarter results demonstrate the magnitude of the pandemic on our business, we have been encouraged as more customers travel and we are seeing a path of progressive improvement in our revenues, financial results and daily cash burn - Ed Bastian, Deltas 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' 3rd quarter 2020 earnings report
Data below is reported for the latest quarter unless stated otherwise
- Revenue: $3.062 billion (down from $12.506 billion for the same quarter of the previous year)
- Revenue decreased by -76% over the last 12 months
- Operating expenses: $9.448 billion (down from $10.489 billion for the same quarter of the previous year)
- Operating expenses decreased by -10% over the last 12 months
- Net loss: -$5.379 billion (down from $1.495 billion for the same quarter of the previous year)
- Diluted loss per share: -$8.47 (down from $2.31 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 635 million (down from 648 million for the same quarter of the previous year)
- Cash and cash equivalents: $16.4 billion
- Cash and cash equivalents per share: $25.82
- Cash and cash equivalents makes up 80.8% of Delta Airlines' market capital
- Cash and cash equivalents makes up 20.8% of Delta Airlines' total assets
- Accounts receivable: $1.503 billion
- Accounts receivable makes up 1.9% of Delta Airlines' total assets
- Goodwill: $9.753 billion
- Goodwill makes up 12.3% of Delta Airlines' total assets
- Goodwill per Delta Airlines stock: $15.36
- Stockholders equity of Delta Airlines' : $3.357 billion
- Stockholders equity per share: $5.28
- So Delta Airlines is trading at 6.05 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 3.7
- Long term debt of Delta Airlines: $29.825 billion
- Long term debt makes up 37.7% of Delta Airlines total liabilities
- Cash used by operations of Delta Airlines for the 3rd quarter: -$2.575 billion
Delta Airlines' management commentary on their 3rd quarter 2020 earnings report
ATLANTA, Oct. 13, 2020 – Delta Air Lines (NYSE:DAL) today reported financial results for the September quarter 2020. Detailed results, including both GAAP and adjusted metrics, are on page four and are incorporated here. “While our September quarter results demonstrate the magnitude of the pandemic on our business, we have been encouraged as more customers travel and we are seeing a path of progressive improvement in our revenues, financial results and daily cash burn,” said Ed Bastian, Delta’s chief executive officer. “The actions we are taking now to take care of our people, simplify our fleet, improve the customer experience, and strengthen our brand will allow Delta to accelerate into a post-COVID recovery.”
September Quarter Financial Results
Setting the Foundation for Recovery
Delta has taken a number of actions to position the company to accelerate into a post-COVID recovery:
Taking great care of Delta people
Improving the customer experience
Simplifying the fleet
Cost Performance
Total adjusted operating expense for the September quarter decreased $5.5 billion or 52 percent versus the prior year quarter excluding $3.1 billion in charges related to the voluntary separation and early retirement programs for employees, $2.2 billion in restructuring charges from fleet-related decisions, and a $1.3 billion CARES Act benefit. This performance was driven by a $1.8 billion or 78 percent reduction in fuel expense, a 75 percent reduction in maintenance expense from parking or retiring nearly 40 percent of mainline aircraft and lower volume- and revenuerelated expenses. Salaries and benefits expense was down 32 percent as a result of approximately 18,000 employees electing to depart the company in addition to benefits from voluntary unpaid leaves, work hour reductions and other initiatives. Non-operating expense for the quarter was $349 million higher versus the prior year quarter, driven primarily by $221 million in higher interest expense from increased debt levels the company has incurred during the COVID-19 pandemic. “Our results this quarter were underpinned by a strong focus on costs, as we reduced adjusted operating expenses by more than 50 percent, similar to the June quarter, despite flying 23 points more capacity,” said Paul Jacobson, Delta’s chief financial officer. “That cost focus allowed the increase we’ve seen in net sales to flow directly into an improvement in our daily cash burn, which improved from $27 million per day in June to $18 million per day in September.”
Balance Sheet, Cash and Liquidity
Delta ended the September quarter with $21.6 billion in liquidity. Cash used in operations during the quarter was $2.6 billion. Daily cash burn averaged $24 million for the quarter, with an average of $18 million for the month of September. At the end of the September quarter, the company had total debt and finance lease obligations of $34.9 billion with adjusted net debt of $17.0 billion, $6.5 billion higher than December 31, 2019. In September, Delta completed the largest debt offering in aviation history, raising $9.0 billion at a blended average rate of 4.75 percent secured by its SkyMiles loyalty program. In addition, the company borrowed $1.5 billion at a blended yield of 4.4 percent in connection with the issuance of tax-exempt bonds, that will be used to finance the LaGuardia airport project. The company’s total debt had a weighted average interest rate of 4.3 percent at September 30, 2020. Subsequent to the end of the quarter, the company repaid the $3 billion, 364-day term loan that it entered into in March, increasing its unencumbered asset base to $9 to $10 billion of aircraft, engines and spare parts and reducing remaining debt amortization and maturities to $2.3 billion through the end of 2021. The company also repaid $2.6 billion under its revolving credit facilities drawn down in March 2020. At the end of the September quarter, the company’s Air Traffic Liability stood at $4.6 billion, including a current liability of $4.4 billion and a non-current liability of $0.2 billion. The non-current liability represents the current estimate of tickets to be flown, as well as credits to be used, beyond one year. Travel credits represent approximately 60 percent of the Air Traffic Liability at the end of the September quarter.
- Adjusted pre-tax loss of $2.6 billion excludes $4.0 billion of items directly related to the impact of COVID-19 and the company’s response, including fleet-related restructuring charges and charges for voluntary separation and early retirement programs for Delta employees, which were partially offset by the benefit of the CARES Act grant recognized in the quarter
- Total adjusted revenue of $2.6 billion declined 79 percent on 63 percent lower capacity versus prior year
- Total operating expense, which includes the $4.0 billion of COVID-related items described above, decreased $1.0 billion over prior year. Adjusted for those items and third-party refinery sales, total operating expense decreased $5.5 billion or 52 percent in the September quarter compared to the prior year, driven by lower capacity- and revenue-related expenses and strong cost management in the business
- At the end of the September quarter, the company had $21.6 billion in liquidity
- During the September quarter cash burn (see Note A) averaged $24 million per day, and $18 million per day for the month of September Revenue Environment Delta’s adjusted operating revenue of $2.6 billion for the September quarter was down 79 percent versus the September 2019 quarter as demand for air travel remains under significant pressure. Passenger revenues declined 83 percent on 63 percent lower capacity. Non-ticket revenue streams have performed relatively better than passenger revenues, with total loyalty revenues declining 60 percent and cargo declining 25 percent. “With a slow and steady build in demand, we are restoring flying to meet our customers’ needs, while staying nimble with our capacity in light of COVID-19,” said Glen Hauenstein, Delta’s president. “While it may be two years or 2 more until we see a normalized revenue environment, by restoring customer confidence in travel and building customer loyalty now, we are creating the foundation for sustainable future revenue growth.”
Setting the Foundation for Recovery
Delta has taken a number of actions to position the company to accelerate into a post-COVID recovery:
Taking great care of Delta people
- Through the voluntary separation and early retirement programs, voluntary unpaid leaves, job sharing and other initiatives, the company has been able to avoid involuntary furloughs for ground and flight attendant employees
- Launching a “Stop the Spread. Save Lives.” campaign to emphasize the six core health actions that protect Delta employees against COVID-19, including wearing masks, social distancing, testing and getting a flu shot. Delta is providing no-cost COVID-19 testing and flu shots for its U.S. employees
Improving the customer experience
- Emphasizing health and safety with the Delta CareStandard, a multi-layered approach that includes intense cleaning protocols, blocking middle seats and requiring masks onboard all aircraft
- Reducing complexity for customers by eliminating change fees for nearly all domestic fares and redeposit/reissuance fees on domestic reward tickets for SkyMiles Members
- Taking a customer-centric approach to refunds, with approximately $2.8 billion returned to customers yearto-date
Simplifying the fleet
- Restructuring its Airbus and CRJ aircraft order books to better match the timing of aircraft deliveries with network and financial needs over the next several years. The restructuring reduces aircraft purchase commitments by more than $2 billion in 2020 and by more than $5 billion through 2022
- Accelerating its fleet simplification strategy, which is intended to modernize and streamline the company’s fleet, enhance the customer experience and generate cost savings. The company has announced plans to accelerate retirements of nearly 400 aircraft by 2025, including more than 200 in 2020
Cost Performance
Total adjusted operating expense for the September quarter decreased $5.5 billion or 52 percent versus the prior year quarter excluding $3.1 billion in charges related to the voluntary separation and early retirement programs for employees, $2.2 billion in restructuring charges from fleet-related decisions, and a $1.3 billion CARES Act benefit. This performance was driven by a $1.8 billion or 78 percent reduction in fuel expense, a 75 percent reduction in maintenance expense from parking or retiring nearly 40 percent of mainline aircraft and lower volume- and revenuerelated expenses. Salaries and benefits expense was down 32 percent as a result of approximately 18,000 employees electing to depart the company in addition to benefits from voluntary unpaid leaves, work hour reductions and other initiatives. Non-operating expense for the quarter was $349 million higher versus the prior year quarter, driven primarily by $221 million in higher interest expense from increased debt levels the company has incurred during the COVID-19 pandemic. “Our results this quarter were underpinned by a strong focus on costs, as we reduced adjusted operating expenses by more than 50 percent, similar to the June quarter, despite flying 23 points more capacity,” said Paul Jacobson, Delta’s chief financial officer. “That cost focus allowed the increase we’ve seen in net sales to flow directly into an improvement in our daily cash burn, which improved from $27 million per day in June to $18 million per day in September.”
Balance Sheet, Cash and Liquidity
Delta ended the September quarter with $21.6 billion in liquidity. Cash used in operations during the quarter was $2.6 billion. Daily cash burn averaged $24 million for the quarter, with an average of $18 million for the month of September. At the end of the September quarter, the company had total debt and finance lease obligations of $34.9 billion with adjusted net debt of $17.0 billion, $6.5 billion higher than December 31, 2019. In September, Delta completed the largest debt offering in aviation history, raising $9.0 billion at a blended average rate of 4.75 percent secured by its SkyMiles loyalty program. In addition, the company borrowed $1.5 billion at a blended yield of 4.4 percent in connection with the issuance of tax-exempt bonds, that will be used to finance the LaGuardia airport project. The company’s total debt had a weighted average interest rate of 4.3 percent at September 30, 2020. Subsequent to the end of the quarter, the company repaid the $3 billion, 364-day term loan that it entered into in March, increasing its unencumbered asset base to $9 to $10 billion of aircraft, engines and spare parts and reducing remaining debt amortization and maturities to $2.3 billion through the end of 2021. The company also repaid $2.6 billion under its revolving credit facilities drawn down in March 2020. At the end of the September quarter, the company’s Air Traffic Liability stood at $4.6 billion, including a current liability of $4.4 billion and a non-current liability of $0.2 billion. The non-current liability represents the current estimate of tickets to be flown, as well as credits to be used, beyond one year. Travel credits represent approximately 60 percent of the Air Traffic Liability at the end of the September quarter.
Delta Airlines (NYSE: DAL) stock price history
The image below, obtained from Google, shows the stock price history of Delta Airlines (NYSE: DAL) over the last 5 years. And it's not been a good time for Delta Airlines' stockholders. 5 years ago it was trading at around $51 and its currently trading at around $31.98 a stock. That's a significant loss of -37.3% suffered by Delta Airlines stockholders over the last 5 years.
The stock of Delta Airlines is trading at closer to its 52 week low of $17.51 than it is to its 52 week high of $62.48 which to us is a clear indication that the short term sentiment and momentum of Delta Airlines' stock is very negative at this point in time. It is not surprising considering that the airline and travel industry has basically grounded to a halt in recent months. Pair that to a significant stock market sell off due to Covid-19 and its a lethal cocktail for DAL's stock price.
The stock of Delta Airlines is trading at closer to its 52 week low of $17.51 than it is to its 52 week high of $62.48 which to us is a clear indication that the short term sentiment and momentum of Delta Airlines' stock is very negative at this point in time. It is not surprising considering that the airline and travel industry has basically grounded to a halt in recent months. Pair that to a significant stock market sell off due to Covid-19 and its a lethal cocktail for DAL's stock price.
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 three 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: -12.6%
- Delta Airlines: -33.05%
- American Airlines: -69.74%
Recent coverage of Delta Airlines (DAL)
The extract below discusses the latest results from Delta Airlines as obtained from Stocknews.com
Offering more than 15,000 affiliated departures, Delta Air Lines, Inc. (DAL) is the nation’s second largest airline operator that serves nearly 200 million people every year, taking customers across its industry-leading global network to more than 300 destinations in over 50 countries. DAL provides scheduled air transportation for passengers and cargo worldwide and operates in two segments – Airline and Refinery.
DAL is one of the worst-hit travel stocks of 2020 with a decline in income over the past two quarters because of the pandemic. In the third quarter ended September 2020, Delta’s adjusted operating revenue of $2.6 billion was down 79% year-over-year as demand for air travel remained under significant pressure. Passenger revenues declined 83% as a result of 63% lower capacity. The company booked a net loss of $5.4 billion as it spent billions on buyouts and early retirement packages to cut its workforce. DAL reported a loss of $8.47 per share compared to the year-ago EPS of $2.31.
With travel restrictions amid the rising coronavirus cases, the company is struggling to stay operational. The recently released financial results and the potential downside based on several factors have made our proprietary system to rate DAL as a “Sell.”
Read the full article here
Offering more than 15,000 affiliated departures, Delta Air Lines, Inc. (DAL) is the nation’s second largest airline operator that serves nearly 200 million people every year, taking customers across its industry-leading global network to more than 300 destinations in over 50 countries. DAL provides scheduled air transportation for passengers and cargo worldwide and operates in two segments – Airline and Refinery.
DAL is one of the worst-hit travel stocks of 2020 with a decline in income over the past two quarters because of the pandemic. In the third quarter ended September 2020, Delta’s adjusted operating revenue of $2.6 billion was down 79% year-over-year as demand for air travel remained under significant pressure. Passenger revenues declined 83% as a result of 63% lower capacity. The company booked a net loss of $5.4 billion as it spent billions on buyouts and early retirement packages to cut its workforce. DAL reported a loss of $8.47 per share compared to the year-ago EPS of $2.31.
With travel restrictions amid the rising coronavirus cases, the company is struggling to stay operational. The recently released financial results and the potential downside based on several factors have made our proprietary system to rate DAL as a “Sell.”
Read the full article here
Delta Airlines (NYSE: DAL) latest stock valuation
So what is Delta Airlines' stock worth based on the release of their 2nd 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 $61.20 a Delta Airlines stock (down significantly from our 2nd quarter 2020 earnings report valuation of Delta Airlines).
We therefore believe that the stock is undervalued at its current price of $31.98
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 $67.10. Therefore we see a good entry point into Delta Airlines stock at $55.10 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 $31.98
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 $67.10. Therefore we see a good entry point into Delta Airlines stock at $55.10 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 4th quarter 2020 earnings report in middle January 2021