Delta Airlines stock analysis.
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The travel industry is booming right now. Airline passenger numbers have returned to pre-pandemic levels. Last week, Delta Airlines reported record revenues of 15.6 billion for the quarter and the stock is up 42% year to date.
At the current share price, Delta has a market cap of 30 billion. It’s got 8.5 billion of cash and investments and 18 billion of debt. So the enterprise value is just under 40 billion.
Revenue over the last 12 months is 55.8 billion which is almost 20% above the 2019 peak.
Net income, however, at 3 billion is still 37% below the peak. One reason is that Delta had to take on a lot of debt during the pandemic and that is costing the company almost a billion dollars a year in interest payments.
But Delta is optimistic it can pay the debt off over time. And management gave an encouraging outlook. It thinks revenue will grow between 17-20% this year with an operating margin above 12%. Free cash flow is expected to cruise above 4 billion in 2024. That means Delta stock is now valued at only 8 times next years free cash flow.
A key part of the investment case for Delta is its diversified revenue streams in particular its SkyMiles partnership with American Express. In an interview on CNBC, JP Morgan analyst Jamie Baker said that close to 1% of US GDP is now being charged on co-branded Delta American Express credit cards. This is a lucrative venture for Delta and could contribute almost 7 billion in revenue this year. That’s 63% growth since 2019.
#deltaairlinesstock #stockstobuy #stocks #overlookedalpha
Discover under-the-radar stock ideas: https://www.overlookedalpha.com
The travel industry is booming right now. Airline passenger numbers have returned to pre-pandemic levels. Last week, Delta Airlines reported record revenues of 15.6 billion for the quarter and the stock is up 42% year to date.
At the current share price, Delta has a market cap of 30 billion. It’s got 8.5 billion of cash and investments and 18 billion of debt. So the enterprise value is just under 40 billion.
Revenue over the last 12 months is 55.8 billion which is almost 20% above the 2019 peak.
Net income, however, at 3 billion is still 37% below the peak. One reason is that Delta had to take on a lot of debt during the pandemic and that is costing the company almost a billion dollars a year in interest payments.
But Delta is optimistic it can pay the debt off over time. And management gave an encouraging outlook. It thinks revenue will grow between 17-20% this year with an operating margin above 12%. Free cash flow is expected to cruise above 4 billion in 2024. That means Delta stock is now valued at only 8 times next years free cash flow.
A key part of the investment case for Delta is its diversified revenue streams in particular its SkyMiles partnership with American Express. In an interview on CNBC, JP Morgan analyst Jamie Baker said that close to 1% of US GDP is now being charged on co-branded Delta American Express credit cards. This is a lucrative venture for Delta and could contribute almost 7 billion in revenue this year. That’s 63% growth since 2019.
#deltaairlinesstock #stockstobuy #stocks #overlookedalpha
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NewsTranscript
00:00 The travel industry is booming right now, airline passenger numbers have returned to pre-pandemic
00:05 levels. Last week Delta Airlines reported record revenues of $15.6 billion for the quarter and the
00:12 stock is up 42% year to date. At the current share price, Delta has a market cap of $30 billion,
00:19 it's got $8.5 billion of cash and investments and $18 billion of debt, so the enterprise value is
00:24 just under $40 billion. Revenue over the last 12 months is $55.8 billion which is almost 20% above
00:32 the 2019 peak. Net income however at $3 billion is still 37% below the peak. One reason is that
00:39 Delta had to take on a lot of debt during the pandemic and that is costing the company almost
00:44 a billion dollars a year in interest payments. But Delta is optimistic it can pay the debt off
00:50 over time and management gave an encouraging outlook. It thinks revenue will grow between
00:55 17-20% this year with an operating margin above 12%. Free cash flow is expected to cruise to above
01:03 $4 billion in 2024, that means Delta stock is now valued at only 8 times next year's free cash flow.
01:10 A key part of the investment case for Delta is its diversified revenue streams,
01:15 in particular its SkyMiles partnership with American Express. In an interview on CNBC,
01:21 JP Morgan analyst Jamie Baker said that close to 1% of US GDP is now being charged on co-branded
01:29 Delta American Express credit cards. This is a lucrative venture for Delta and could contribute
01:35 almost $7 billion in revenue this year, that's 63% growth since 2019. So let's assume that Delta
01:43 can grow revenue 20% this year before returning to a historical growth rate of around 4%.
01:48 Let's model that for the next 10 years and then assume it operates with a net margin rate of 8%.
01:54 In that scenario, Delta would be producing $95 billion of revenue in 10 years time with net
02:00 income around $7.6 billion. A 12 times multiple puts the valuation at $91.2 billion which works
02:07 out to an investment return of 11.8% a year. Add in some dividends and that return could increase
02:13 to around 13% a year. That might be too pessimistic but airlines are notoriously complex
02:19 investments. Delta's investment returns are subject to complex factors such as oil prices,
02:25 interest rates, the global economy and decarbonisation. On balance and mostly due
02:30 to its partnership with American Express, I give the stock a cautious bullish rating.
02:35 But these are my personal opinions, not financial advice and I've got no position in Delta. For
02:40 more detailed investing ideas make sure to visit our website overlookedalpha.com