Breaking News

COVID crashed Delta Air stock by 47%. Vaccine and state support will save her

0 0

Delta Air Lines, one of the largest US airlines, has fallen since the start of the coronavirus pandemic and are far from pre-crisis levels. But perhaps the hardest part for the carrier is over.
Share price October 15, 2019: $ 53.64 per share
Price now: $ 31.47
Dynamics: -41%
Reason for the fall: COVID-19 pandemic and border closures
Outlook: highly dependent on vaccine availability
Risks: Second Wave of Coronavirus and Big Debts
Delta Air Lines is one of the largest airlines in the United States and the world in terms of fleet size (about 1,000 aircraft) and traffic volume. It was founded in 1924 and is based in Atlanta, Georgia.
The outbreak of the pandemic plummeted stock markets around the world, and airlines were among the main victims: in March, Delta Air Lines sank much more than the S&P 500. Since mid-February, the carrier’s shares have lost 47%, and in 12 months – 41%.
On October 13, the company reported for the third quarter. Net loss amounted to $ 5.4 billion, and revenue fell by 76% to $ 3.1 billion. Revenues from passenger traffic fell by 83% – to $ 1.938 billion, from cargo – by 25%, to $ 142 million. Flight workload fell to 41% from 88% against the forecast of analysts at 48.8%. However, even after the collapse of quotations in 2020, the capitalization of the air carrier exceeds $ 20 billion.
Pandemic COVID-19. Due to the coronavirus, the demand for air travel has dropped sharply – most countries have closed borders, and passengers canceled their scheduled flights and stayed at home. Demand was also affected by the general economic crisis. This led to a drop in airline revenues worldwide.
Delta Air Lines’ revenues for the first three quarters of 2020 amounted to only $ 13 billion – a year ago this figure was at the level of $ 36 billion.And the net profit of $ 4 billion was replaced by a loss of $ 12 billion.In September, Delta Air Lines lost an average of $ 18 every day mln. Such a sharp decline in indicators could not but have a negative impact on quotations.
Clearance sale from Buffett. Warren Buffett’s exit from its capital also contributed to the collapse of Delta Air Lines. In April 2020, his investment holding Berkshire Hathaway significantly reduced its stake in Delta Air Lines. Buffett’s stake in the airline before the pandemic was 11%, but fell by 18% after the sale of 13 million shares for $ 314 million.
And in May, Buffett announced the complete sale of all stakes in US airlines. “The world has changed for airlines. I don’t know if in three or four years people will fly as much as they did last year. They have too many planes. I was wrong, ”the investor said, adding that it was impossible to foresee such a decline in the industry. As a result, quotes fell to $ 19.19, the lowest since 2013.
Government funding. US air carriers in May applied to the US Treasury for government subsidies. As a result, they received grants to avoid mass layoffs and mitigate the consequences of the crisis. So far, Democrats and Republicans cannot agree on a new stimulus package – negotiations have been going on for several months.
However, it is expected that it will still be adopted – the managing director of the International Monetary Fund Kristalina Georgieva told CNBC that she has no doubt about it. Air carriers can count on $ 25 billion in state aid – this was the amount named in October by Donald Trump, who demanded to immediately allocate this money to airlines.
Vaccine and opening borders. US pharmaceutical companies continue to test COVID vaccines. One of the leaders in the race – Pfizer – announced the end of vaccine trials by the end of October and the possible start of use of the drug as early as late November. Any positive about the vaccine can return investors to optimism and hope that all restrictions will be removed soon, which will help the airline industry recover.
Business optimization. Delta Air Lines recognizes the impact of the pandemic will affect the sector for many years to come. The airline president, Glen Haunstein, suggested that the recovery could take at least two years. Therefore, the company is cutting costs: it sent 17 thousand people to retire ahead of schedule and postponed orders for new aircraft, which will save $ 5 billion until 2022. The carrier will also decommission old aircraft.
Second wave of coronavirus. Restoring Delta Air Lines’ quotes could interrupt a new outbreak of COVID-19 and the return of quarantine measures. Many countries are re-imposing restrictions. In the event of an increase in the number of infections and the absence of positive news on the vaccine, this will delay the process of resuming international flights. The company has already announced that it will not sell the middle seats until at least January 6, 2021.
Rethinking the approach to business travel. The closure of borders made it impossible for business travel – companies were forced to move business meetings online. According to Delta Air Lines CEO Ed Bastian, the number of business travel under normal conditions (after the opening of borders and economic recovery) will decrease by 10-20% in the next few years.
Big debts. After the outbreak of the pandemic, Delta Air Lines issued over $ 1.5 billion in senior secured bonds and raised a $ 3 billion line of credit. In September, the company borrowed another $ 6.5 billion. Total debt as of September 30 reached $ 29 billion. At the end of 2019, it was only $ 8.87 billion. At the same time, Delta Air Lines spent years paying off debt before the start of the pandemic, so its debt burden is not as catastrophic as it could be.
After the outbreak of the pandemic, the papers of air carriers are characterized by instability and a strong dependence on news on the situation with the coronavirus. Reports of an increase in the number of infected are putting pressure on quotes, but they can quickly take off on a good news background – as it did in June amid high expectations of a recovery in demand on domestic and foreign flights.
According to Morgan Stanley analyst Ravi Shanker, Delta Air Lines shares are interesting to invest at the moment – in his opinion, the risk premium already looks attractive.
“We do not expect strong Q4 results from Delta Air Lines, but we do not believe they will make a big difference. We expect investors to pay attention to forecasts, not current figures. Delta Air Lines has some of the highest customer satisfaction rates of its competitors, as well as a higher PRASM score, ”the analyst said.
PRASM – Passenger Revenue per Available Seat Mile. It is a metric used by all airlines to compare efficiency.
Ravi Shanker recommended shares of Delta Air Lines for purchase and set a target price for them at $ 54, which on October 18 means upside potential of 71%.
The FactSet consensus forecast for Delta Air Lines is “above-average potential” with a price target of $ 38.78. 10 analysts advise buying securities, another eight have assigned them a “hold” rating.
You will find more interesting stories and news about investments in our telegram channel “You are an investor yourself!”

Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleppy
Sleppy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %