Delta Air Lines, Inc. (DAL): Smart Money Holding Firm to Conviction in Airline

At Insider Monkey, we track more than 800 hedge funds (about 786 of which filed Form 13Fs this quarter) and measure the performance of their long stock picks in real time. Data from eVestment shows that concerned investors have been pulling some of their capital from hedge funds recently, dropping their collective assets under management to under $3 trillion for the first time since May 2014. Part of this is due to the media piling ruthlessly on hedge funds over the past year and “celebrating” the large losses of hedge fund titans like Bill Ackman. However, while 2015 was undoubtedly a difficult one for the industry, our data shows that hedge funds’ stock picks are outperforming the market so far in 2016, topping the S&P 500 Total Return Index by 50 basis points and the Russell 2000 Index by 410 basis points during the first two months of this year. So on average, it is a good idea to pay attention to what hedge funds are doing. Keeping this in mind, let’s take a look at the hedge fund activity in Delta Air Lines, Inc. (NYSE:DAL) during the fourth quarter. At the end of this article we will also compare DAL to other stocks including Caterpillar Inc. (NYSE:CAT), ABB Ltd (ADR) (NYSE:ABB), and Automatic Data Processing (NASDAQ:ADP) to get a better sense of its popularity relative to some of its market cap peers.

Delta Air Lines, Inc. (NYSE:DAL) was in 108 hedge funds’ portfolios at the end of December. That figure represented a marginal decrease of one fund from the end of September. On the other hand, the collective value of those investors’ holdings rose by about $537 million to $7.86 billion. Having 108 investors with long positions in the stock ranked Delta Air Lines as the tenth-most popular stock among the investors in our database and by far the most popular airline (American Airlines Group Inc (NASDAQ:AAL) was next with 76).

Why do top investors like Delta Air Lines? For starters, the company’s profit and margins have soared as oil prices have faded, with its EBITDA margin rising by 3 percentage points to 21% in 2015, while adjusted EPS hit $1.18 in the fourth quarter, up by more than 50% year-over-year. The growing profit is allowing Delta and some of the other major airlines to put the squeeze on low-cost carriers by improving their service without hiking their fees. Despite a strong three-year run that has seen its stock appreciate by over 225%, Delta Air Lines is also extremely cheap from a valuation perspective, trading at a P/E of just 8.65. While AAL and United Continental Holdings Inc (NYSE:UAL) have even lower P/E ratios, both of those companies suffered revenue declines in 2015, while Delta posted a small revenue increase. AAL and UAL also had smaller growth than Delta in terms of traffic and capacity growth. Those factors may be why Delta is the only airline stock with a unanimous ‘Buy’ rating among analysts as well as having the largest return potential of any airline stock based on those analysts’ average target price in comparison to the actual price of the stock.

Keeping this in mind, we’re going to analyze the key hedge fund action regarding Delta Air Lines, Inc. (NYSE:DAL) on the next page.