We recently compiled a list of the 10 Best Airline Stocks To Buy According To Short Sellers. In this article, we are going to take a look at where Delta Air Lines, Inc. (NYSE:DAL) stands against the other airline stocks.
The COVID-19 pandemic’s impact on travel caused an alarming 54.1% drop in the airline industry’s revenue from $838 billion in 2019 to $384 billion in 2020, according to the International Air Transport Association (IATA). However, the industry has subsequently risen substantially, with annual revenue estimated to reach $996 billion by 2024, representing 18.8% growth from 2019 and a 159% recovery from the pandemic low.
On the other hand, the Business Research Company projects that the global airline market will grow at a compound annual growth rate of 8.2%, from $523.04 billion in 2023 to $566.06 billion in 2024. Whereas in the upcoming years, a significant expansion in the size of the airline industry is anticipated at a CAGR of 8.8% to $794.61 billion in 2028. According to the aforementioned research, the increase in the number of air passengers is fueling the growth of the airline industry. For example, in March 2023, the US government’s Bureau of Transportation Statistics reported that the number of passengers carried by US airlines rose by 30% from 658 million in 2021 to 853 million in 2022. Regionally, Asia-Pacific was the world’s largest airline market in 2023, and it is also projected to be the fastest-growing region in the airline market study throughout the forecast year.
Furthermore, the booming airline market is also being driven by the growing tourism market. For instance, in December 2022, the New Zealand government ministry, the Ministry of Business, Innovation, and Employment, reported that tourism spending in the country hit $26.5 billion, up 2.7% from $704 million a year before. Most importantly, arrivals of foreign visitors to New Zealand jumped by 335.3% to 229,370.
Consumer confidence in leisure travel is still high. Jamie Baker, analyst for aircraft leasing and U.S. airlines states: “Our prevailing thesis is that premium and international demand for air travel remains in the lead.” Nonetheless, limited capacity and lower costs are two challenges that airlines around the globe are dealing with. On the other hand, in China, the rate of domestic passenger yield is anticipated to stay high, while the rate of outbound tourism is projected to increase in the upcoming months. The IATA has raised the industry’s projected profit for 2024 in Asia Pacific by almost 18%. According to its longer-term projections, Asia Pacific will have the fastest global growth in air travel demand, with a passenger CAGR of 5.3% over the next 20 years.
Meanwhile, the US airlines have emphasized debt reduction, which should assist in strengthening their balance sheets and credit ratings over time. The domestic industry reported a total debt of $143 billion at the end of 2023, a decline of around 15% from 2021 levels. Investors who keep a long-term perspective and diversify their portfolios may gain from the industry’s revival and expansion in the future years.
Methodology:
We sifted through holdings of airline ETFs and online rankings to form an initial list of 20 airline stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted. We’ve also mentioned the number of hedge funds that have long positions in these stocks as of Q2, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
An aerial view of a commercial aircraft taking off from a coastal hub.
Delta Air Lines, Inc. (NYSE:DAL)
% of shares shorted: 4.76%
Number of Hedge Fund Holders: 51
As a legacy carrier, Delta Air Lines, Inc. (NYSE:DAL) is one of the biggest airlines in the US. The Georgia-based company offers cargo and passenger air transportation on a scheduled basis. The segments for airlines and refineries handle its operations.
Despite a 30% decline in net profitability, DAL reported a solid second quarter of 2024 fueled by record revenue. The company maintained its adjusted earnings prediction for the entire year, estimating between $6 and $7 per share, despite the decline in profits. In light of the airline industry’s struggles with rising expenses and more capacity, fares have decreased over the previous year.
Ed Bastian, CEO of Delta, highlighted the airline’s strong performance in spite of market difficulties. The airline company predicts record revenue for the third quarter, driven by strong demand for summer travel. DAL has managed to stay “fairly well insulated” from industry overcapacity because of its emphasis on premium seats and other high-revenue streams.
While sales of coach tickets increased little, premium ticket revenue for the Georgia-based airline company increased by 10% from last year. Travel abroad has been robust, especially to Paris, but the Summer Olympics are predicted to have a minor effect on trans-Atlantic sales.
The lucrative agreement between Delta and American Express is still going strong; this year’s investment of $1.9 billion is up 9% from the previous one. Along with big free cash flow projections, the airline hopes to make up to $4 billion this year.
Oakmark Fund stated the following regarding Delta Air Lines, Inc. (NYSE:DAL) in its first quarter 2024 investor letter:
“Delta Air Lines, Inc. (NYSE:DAL) is a leading global airline. Of the big three U.S.-based airlines (Delta, United and American), we see Delta as the most competitively advantaged. We believe the company’s years of industry-leading operational performance and investments in the customer experience have established Delta as the premium brand in the industry. We also think its geographically optimal hubs, high local market share, robust loyalty program and unique corporate culture all support healthy returns on capital. Delta currently trades at 6x our estimate of normalized earnings per share. We believe this is an attractive valuation for a competitively advantaged and growing business in an out-of-favor industry.”
Despite recent operational difficulties, TD Cowen analyst Thomas Fitzgerald CFA kept a “Buy” rating on Delta Air Lines with a $59.00 price target, highlighting the airline’s resilience and long-term development potential. Additionally, Citi also maintained its Buy rating with a $65.00 price target and remains bullish about the company’s profitability and recovery.
Overall DAL ranks 5th on our list of the best airline stocks to buy according to short sellers. While we acknowledge the potential of DAL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DAL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.