The winds of volatility are rocking the stock market, but Delta Air Lines, Inc. (NYSE:DAL) knows how to steer in turbulent weather. The highly overplayed Ebola fears, on account of miniscule cases reported in U.S., and the abnormally low price of jet fuel, which accounts for almost 35% of operating costs for most Airlines operating in U.S., mean only one thing. Go long Delta Air Lines, Inc. (NYSE:DAL).
The Atlanta, Georgia based airlines has posted not only Ebola resistant results, but it also didn’t let the glum future macroeconomic outlook affect its bottom line, as it recently beat analyst estimates when it reported its third quarter earnings. Let’s take a closer look at how Delta Air Lines, Inc. (NYSE:DAL) fares better on both valuation and profitability fronts than any of its competitors.
With a market cap of $28.99 billion, it is the biggest concern among its competitors in the industry, namely, American Airlines Group Inc (NASDAQ:AAL) $24.04, United Continental Holdings Inc (NYSE:UAL) $16.69 billion.
Trading at an earnings multiple of 3, Delta Air Lines, Inc. (NYSE:DAL) is selling at a considerable discount as compared to United Continental’s multiple of 27.
An important metric in the context of analysing airline companies is the passenger load factor. It is essentially the percentage of filled seats during a particular period. For the third quarter, Delta Air Lines, Inc. (NYSE:DAL) posted a healthy number of 86.4% which was also slightly better than its competitor, United Continental Holdings Inc (NYSE:UAL)’s figure of 85.8%.
It’s is a debt ridden industry generally, the airline business, because of the losses that were incurred in the wake of dot-com bubble in 2003, then fear and long regulatory procedures after 9/11, and also the SARS epidemic which bore heavily on the top line of the airline companies. However, while the competitors of Delta Air Lines, Inc. (NYSE:DAL), have trouble posting positive numbers for the free cash flow. the Georgia based airlines had $1.71 billion in free cash flow at the end of fiscal year 2013.
There is a whole lot of things that Delta Air can do with this money to increase shareholder value. The company could pay off a larger portion of its debt, buy back shares, or even expand its business further, which brings us to yet another bright prospect of investing in Delta Air.
Delta has joined hands with Virgin Atlantic to bulk up its numbers for the U.S.-U.K. route, and by early 2015 the company intends to offer 10 daily flights from New York to London.
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