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Delta Air lines (DAL) released some surprising numbers on February 4th for the month of January. I did not see an update published so I figured I would take the liberty of providing an update and a quick glance at where we are with the market and where the stock might go. This article is not focusing on business model, refinery efficiency, debt reduction strategy and new purchases.

January Update

Delta was named the 2014 Airline of the year by Air Transport World Magazine, which is the first time in 10 years that a North American-based carrier has earned that distinction. Delta has clearly come a long way and seems to have room to keep going.

A majority of Delta hubs have been recently hit by the severe weather; and while I had sold 90% of my position in January, I bought back 70% of a new position. It seemed to me that with the weather and market sentiment, it was time to book some profit and move along. Then came the January report that outlined January 2013 and January 2014 (source: Delta Traffic Releases):

January 2013

January 2014

Difference

Total*

Domestic traffic RPMs

8,182,998

8,356,922

Up 2.1%

Up 4.2%

International traffic RPMs

5,724,232

6,130,693

Up 7.1%

Passengers Boarded

11,740,804

11,938,561

Up 1.7%

N/A

Flying Capacity - Domestic

10,461,863

10,420,172

Down 0.4%

Up 1.8% total

Flying Capacity - International

7,063,186

7,421,261

Up 5.1%

PLF (load factor) - Domestic

78.2%

80.2%

Up 2 pts

Up 1.8 pts

PLF (load factor) - International

81.0%

82.6%

Up 1.6 pts

*The total is the percentage increase of both domestic and international on a combined basis.

Delta had to cancel nearly 4,000 flights according to the released report. However, the highlights are as follows:

  1. Consolidated passenger unit revenue (PRASM) was up 5.0% for January year over year
  2. Traffic was up a total of 4.2% as seen above
  3. Increased the utilization of total available capacity (i.e. more passengers) domestically and internationally (PLF increase of 1.8 pts)
  4. The weather affects can be seen on the small decrease of flying capacity domestically

The Fundamentals (source: Fidelity)

DAL continues to show good profit margins and returns compared to the airline industry (as of market close 2/5/14). The company reported strong results on 1/21/2014 showing growth and margin expansion. Some key metrics presented below.

Profit Margins

DAL

Airline Industry Average

Gross Margin

22.72%

21.76%

Operating Margin

10.07%

7.97%

Pretax Margin

6.69%

3.11%

Note: All figures are trailing 12 months.

Returns

DAL

Airline Industry Average

Return on Sales

27.90%

5.88%

Return on Equity

487.23%

91.53%

Return on Assets

22.30%

4.36%

Return on Investment

67.45%

21.93%

Note: All figures are trailing 12 months.

Looking at the income statement (for sales and income) and balance sheet (for net cash flow), one notices a healthy uptrend from 2008 to 2013. The increase from 2012 to 2013 is especially noticeable.

Income Statement

2013

2012

2011

2010

2009

2008

Sales/Turnover (Net)

37,773

36,670

35,115

31,755

28,063

22,697

Cost of Goods Sold

29,190

29,296

28,065

24,422

23,481

19,672

Gross Profit (Loss)

8,583

7,374

7,050

7,333

4,582

3,025

NET INCOME (LOSS)

10,540

1,009

854

593

-1,237

-8,922

Note: All numbers in millions of US Dollars

Cash Flow

2013

2012

2011

2010

2009

2008

Operating Activities - Net Cash Flow

11,089

2,476

2,834

2,832

1,379

-1,707

Note: All numbers in millions of US Dollars

Ownership and Insiders

The following insider buy/sell transactions were filed in 2013 along with their purchase/sell price (source: Fidelity). Purchases seem to be approximately between the $19 and $28 range. Sell transactions seem to be approximately between the $18 and $29. 2013 was a stellar year for the stock and the price appreciation warranted some profit booking.

(click to enlarge)

(click to enlarge)

Insider ownership has increased since the latest 13D and 13G filings for the 9/30/13 period as seen below. I track insider ownership closely for all my holdings. It has proven to be a good indicator for market sentiment plenty of times.

Fund Event

#

Funds creating new positions:

100

Funds Adding to a position:

195

Funds closing position:

48

Funds reducing position:

145

The Technicals

DAL has been in a strong uptrend for the previous year. The daily chart is attractive while the weekly perhaps could use a breather as I will describe below (source: StockCharts). The technicals should be used as buying points considering the fundamentals for DAL are intact.

Daily - the MACD is still positive and taking a breather. The Slow STO is starting to curl up. The RSI is sitting at the 50 buy line. Also, notice every time the price dips below the 20-day or 50-day MA, the buying tends to restart.

(click to enlarge)

Weekly - The weekly chart is also bullish, but looks like it needs to settle slightly. The 20-day moving average is sitting on the $27.91 mark which could indicate a short term correction is needed. It has acted as a good floor for DAL during 2013. The RSI is sitting close to overbought levels at 67.76. Take note that since DAL was added to the S&P in September 2013, it has been in overbought levels for the majority of the time. The MACD seems it wants to curl down slightly even though the trend is up. The Slow STO could be heading to the 50 and then continue the uptrend.

(click to enlarge)

The Street

The street seems to be bullish on Delta as indicated in the ownership section above. Current consensus for some of the big institutions is as follows (source: Fidelity):

12 Month PT

$ Value

Low price target

$35.00

Mean price target

$39.70

High price target

$46.00

(click to enlarge)

Conclusion

Despite a bad weather month, Delta reported improved results. Compared to January 2013, Delta is operating under new metrics and is being assessed differently; the expectations are definitely higher. As a shareholder, I was glad to see a dividend from the company last year.

The market has been selling off during the last week or so. Delta Air Lines is part of the S&P 500 Index, and as such, investor/funds/institutions trying to mimic the index on a stock-by-stock basis will be selling DAL shares, which prompted this buying opportunity. We are about 10% from the highs.

I looked at Delta Air Lines two days ago and thought to myself "I should grab this while it's still under $30". I said the same thing at $14 and $19 and the company has not disappointed. I am hoping I will not be disappointed again. I am looking for 25-30% upside as long as the story remains intact. As always, invest smart and scale in. Good luck with your investments.

Source: Score: Delta Air Lines 1 - Weather 0