Final Project

Delta Airlines Stock Performance Analysis

Webster University

Introduction and Company Overview

Delta Airlines has a rich history having been started in 1929 in Macon, GA and grew to be one of the main US carriers that offer comparatively cheap flights. The company currently has existing flights to Canada, Latin America, Europe, and Asia and is headquartered in Hartsfield-Jackson Airport in Atlanta, GA. The firm sells its tickets using different distribution channels such as delta.com, online travel agencies, mobile applications, telephone reservations as well as traditional brick and mortar structures (Manuela Jr, Rhoades & Curtis, 2016). Delta has managed to invest in a fleet of around 800 aircraft that are used for flying clients to their destinations cost-effectively.

I became interested in Delta Airlines since I traveled with the company and was impressed by the ability of the company to offer quality services at very competitive rates. As a result, I felt drawn to the brand as it was not exploitative. The brand recognition and loyalty to the company have ensured that the stock value of the company continues to increase. The company has a robust air transportation infrastructure for transporting passengers and cargo internationally as well as in the United States (McKenna, 2018). The company bases its operations on two segments namely refinery and Airline. The route system for Delta Airline uses a system of markets and hubs in various airports in many cities such as Amsterdam, Boston, Detroit, Atlanta, Los Angeles, Minneapolis, Heathrow, La Guardia- New York, JFK-New York, Charles de Gaulle-Paris, Salt Lake City, Seattle, Narita-Tokyo, Sao Paulo, and Seoul-Incheon.

The company offers other services such as repair, maintenance, and overhaul services; aircraft charters, vacation packages to third party consumers as well as management and programs. This diversification has served the company well and has made it one of the most profitable airline companies in the United States. The banning from March 2019 of Boeing Max 737 has also served the company since it did not own any of such aircraft. The exposure of other companies that have led to massive cancellations for flights created an opportunity for the company to increase their income (Ward, Edmondson & Matthews, 2017). Delta Airlines has continued to over-perform the forecasts of various analysts as well as their own during the last 2 years which indicates the strength of the brand.

The reason why I consider Delta Airlines stock to be a lucrative investment is based on its strong brand performance augmented by a dependable financial track record. Delta has always focused on enhancing most of its premium products as well as non-ticket revenue sources, hence continuing to support its strong revenue growth. The competitive advantage that the company enjoys is also based on the favorable transportation rules, efficient check-in system through internet technology as well as a modern fleet.

The Financial performance of Delta Airlines has been impressive as seen from the year on year performance statistics. The company was able to improve its adjusted pretax operating profit to 15.9% by 190 basis points (Market Realist.com, 2020). The company continued its strong showing in the third quarter as its traffic grew by 5.2% year on year. This was very impressive given that this expansion in traffic outpaced its capacity with the Deltas load factor hitting 90% after growing by 140 basis points. According to Root (2020), the fourth-quarter results for Delta Airline's is quite promising with the company declaring $1.7 earnings per share which were more favorable than the projected $1.5 by the company's management. This means that an investment in the company would allow a person to get a good return.

Data from the investor relations from the company presenting the December highlights of the financial results showed the increased profitability that resulted from lower fuel due to the efficiency of the company’s refinery plants. However, it is important to note that there was an increase in the non-fuel operating expenses up to 4.4% which was compatible with the expectations of the company of 4 to 5 percent.

Current Performance Consensus and Future Expectations by Analysts

Financial analysts agree that the company has been showing strong financial results and as such is set to increase in terms of value. Root (2020) writing for baron.com attributed the soaring stock price to the profitability of the company, its strong management, and the challenges faced by other airline companies. Analysts at yahoofinance.com all accept that the company is going to continue its strong financial performance with many of them labeling it as a strong buy. For the month of February, out of 18 analysts 7 of them labeled strong buy while the other 11 rank the company as a buy (CNN money.com, 2020). This shows that my decision to invest in the company is a viable opportunity to make a sound investment.

Figure 1: Delta Airlines Stock price projection (Adapted from moneycnn.com)

The recommendation of 21 polled investment analysts for CNN money is that Delta Airlines is a viable investment which they label as a buy. Their rating has been holding steady for most of last year. Out of the 21analysts that were polled, 11 of them rated the investment as a buy, 8 of them ranked it as a hold while 2 of them considered that the investment would over-perform. The stock price projection by the analysts determined a median target of $70, a low estimate of $61 and a high estimate of $91. This means that the stock price of the company is set to go up hence the importance of investing in the brand now.

Reasons for the changes in stock price

Many reasons impact stock prices and that makes it fluctuate over time. However, the major reason for the fluctuation of stock prices is attributable to the market forces of demand and supply. If many people want to invest in a particular stock, the increased demand ultimately pushes the price of the investment up (Sainy, 2006). When the supply is high due to many people not being interested in an investment, the price falls. The key question, therefore, becomes what motivates people to want a particular stock.

The key driver for the supply and demand of stocks are mainly the perceptions of the inherent value of the market portfolio. This value is mainly driven by the earnings of the company. In the case of Delta Airlines, the fact that the company has been having steady earnings which are projected to continue improving makes the investment lucrative to many investors which would then push the stock prices up (Min & Joo, 2016). Negative news about a company can also affect the stock price of a company. If investors get information that a company is being investigated for malpractice, they would have a negative opinion of the company which would make them dump their holdings. The increased supply would lead to lower stock prices.

These reasons signal that Delta Airlines is a viable investment option due to the continuing upward trend, as well as the inherent investor confidence in the brand. The unanimous analyst verdicts show that the stock will continue to grow in strength soon. This level of optimism will act as an impetus for further growth since more investors will be drawn to the brand which will increase demand for the stock pushing up the prices further (Esky.com, 2020). This is the main reason that the analysts in this paper have determined that the stock price of Delta Airlines will continue going up.

Figure 2

As figure 2 above shows, Delta Airlines has been performing quite well compared with the S&P 500 returns. In the early part of January, the company started at a high note based on its strong 2019 performance with the stock price dipping a little (Delta Air Lines, 2020). However, the company has stabilized and continues its gradual increase in returns as predicted by many analysts.

Conclusion

Delta Airlines Inc. is one of the main airline operators in the United States that was started in 1929 in Macon and is currently headquartered in Atlanta, Georgia. The company currently owns 800 aircraft that are operating in a safe and rigorous schedule to meet the needs of its clients transporting passengers internationally as well as locally. The company has stable operations in the USA, Latin America, Europe, Canada, and Asia. Buy, buy, and buy!

References

Esky.com, (2020). Delta Airlines. Retrieved from https://www.esky.com/airlines/al/dl/delta-airlines?gclid=CjwKCAiAj-_xBRBjEiwAmRbqYoyLWO_63d_onUASaZOI695rlZ4AU5v1JF8nCc8XGTx_SPQ65eDahRoC-O8QAvD_BwE

CNN money.com, (2020). Delta Airlines. Retrieved from https://money.cnn.com/quote/forecast/forecast.html?symb=DAL

Delta Air Lines, Inc. (DAL), (2020). Yahoo Finance. Retrieved from https://finance.yahoo.com/quote/DAL/history?p=DAL&.tsrc=fin-srch

Manuela Jr, W. S., Rhoades, D. L., & Curtis, T. (2016). An analysis of Delta Air Lines' oil refinery acquisition. Research in Transportation Economics, 56, 50-63.

McKenna, E. (2018). Delta Airlines: A Strategic Analysis.

Market realist, (2020). Market Realist, Inc. Retrieved from https://marketrealist.com/

Min, H., & Joo, S. J. (2016). A comparative performance analysis of airline strategic alliances using data envelopment analysis. Journal of Air Transport Management, 52, 99-110.

Root, A. (2020). Delta Stock Is Soaring Because Earnings Were Way Better Than Expected. Retrieved from https://www.barrons.com/articles/delta-stock-is-soaring-earnings-were-way-better-than-expected-51579008408

Sainy, R. O. M. I. (2006). A study of factors affecting stock price volatility perception of stockbrokers. Intercontinental Journal of Finance Research Review, 4.

Ward, C. B., Edmondson, D. R., & Matthews, L. M. (2017). Delta Airlines: Not Exactly" Flying High". Journal of Critical Incidents, 10.

Appendix

	Date	DELTA	S&P 500	Returns received FROM INVESTMENT
Stock Purchased						10,000.000
		Adj Close	DAL Returns	Adj Close	S&P Returns
	2/5/2020	58.89	0.016571707	3334.69	0.011250596	165.717
	2/4/2020	57.93	0.033725892	3297.59	0.014980414	337.259
	2/3/2020	56.04	0.005382113	3248.92	0.007254614	53.821
	1/31/2020	55.74	-0.023817794	3225.52	-0.01770582	-238.178
	1/30/2020	57.1	0.007943442	3283.66	0.003134359	79.434
	1/29/2020	56.65	-0.01443977	3273.4	-0.000866874	-144.398
	1/28/2020	57.48	0.011437585	3276.24	0.010053584	114.376
	1/27/2020	56.83	-0.033667726	3243.63	-0.015730712	-336.677
	1/24/2020	58.81	-0.024224307	3295.47	-0.009042161	-242.243
	1/23/2020	60.27	0.010563397	3325.54	0.001140977	105.634
	1/22/2020	59.64	-0.011600945	3321.75	0.000289076	-116.009
	1/21/2020	60.34	-0.027244866	3320.79	-0.002651978	-272.449
	1/17/2020	62.03	0.002424014	3329.62	0.003862162	24.240
	1/16/2020	61.88	0.004219442	3316.81	0.008366553	42.194
	1/15/2020	61.62	0.002766444	3289.29	0.001870197	27.664
	1/14/2020	61.45	0.032946696	3283.15	-0.001514533	329.467
	1/13/2020	59.49	0.004220121	3288.13	0.006976215	42.201
	1/10/2020	59.24		3265.35