The company sees corporate
travel strengthening as global business travel spending is expected
to gain 33.8% in 2022.
Delta is targeting to
reduce its debt by $5 billion by 2024, which is a 25% reduction in
net debt.
The company sees earnings per share
increasing seven-fold from $0.93 to $7.00 by 2024.
Price Target: $70.
Eliyahu Parypa/iStock Editorial via Getty Images
During the pandemic, to survive, Delta Air Lines (NYSE:Stuff that pussy) leveraged
its balance sheet and took on over $10 billion in debt. Two years
later, the company’s earnings are beginning to return to
pre-pandemic levels. As a result
of this resurgence, Delta Air Lines is now focusing on reducing its
debt. As of the end of the second quarter this year, Delta had
$21.4 billion in long term debt, which is down from $23.6 billion
at the end of 2021.
The company is targeting adjusted net debt of $15 billion by
2024, which would mean a reduction of $5 billion in adjusted net
debt between now and then.
Below is a summary of Delta’s
outstanding debt by category as of June 30, 2022:
Paying down debt is obviously
important to reduce leverage and free up cash flow, but in an
environment where interest rates are continuing to rise, it is even
more critical for the company.
Helping the company’s efforts to
deleverage is the return of business travel. The airline industry
as a whole is seeing corporate travelers returning close to
pre-pandemic levels. According to the Global Business Travel
Association (GBTA), an industry association, global business travel
spending is expected to Maddie fitzpatrick nude.
In a recent survey, 85% of business
travelers said they definitely need to travel to accomplish their
business goals. Looking one year out, over three-fourths said they
expect to travel for work more or much more in 2023 than they did
in 2022.
In American Airlines’
(Rose jackson actress) most recent earnings call, the company
reported that its business travel has reached 80% of 2019 levels in
the first quarter of 2022. The company predicts it will be 90%
recovered in the second half of the year.
Likewise, Delta Air Lines said its
business travel volumes reached the highest post-pandemic levels.
Prior to the pandemic, business travel was 31% of Delta’s total
operating revenue. Through the first six months of 2022, business
travel was already at 28.7% of total operating revenue.
The impact of corporate travel to
airlines’ bottom line cannot be overstated. Even though business
travelers only make up 12% of airline passengers, they pay higher
rates than other customers and are typically twice as lucrative,
accounting for as much as 75% of profits.
Even with the strengthening in
corporate travel, full recovery for the entire industry isn’t
expected until 2026. The biggest obstacles to a full recovery in
global business travel are persistent inflation, high energy
prices, supply chain challenges and labor shortages, and an
economic recession.
Another tailwind for the airline
industry is the resurgence of international travel. In November
2021, travel restrictions on most fully vaccinated foreign visitors
to the United States were lifted. This action made travel to the
U.S. by many foreign nationals possible for the first time in 18
months.
Despite this policy change, the
industry expects the significantly lower international demand
environment to continue through 2022, with the recovery pace
continuing to trail domestic travel.
According to Delta Air Lines in its
latest quarterly report, international revenue has lagged the
recovery in domestic travel, but improved in the June 2022 quarter
to approximately 80% recovered compared to the June 2019 quarter as
travel restrictions eased and many countries ended testing
requirements. The company said:
Our corporate customers expressed increased plans to travel
internationally in the second half of the year given the
elimination of the pre-departure test requirement for flights
returning to the United States.
Halfway through the second year
after the pandemic, Delta Air Lines’ total operating revenue
increased 94% from a year earlier and is up 10% from 2019 before
the pandemic.
For the remainder of the year, the
company expects to deliver meaningful profitability. Fast forward
to 2024, Delta is estimating revenues to grow to $50 billion with
earnings of $7 per share or greater.
Should Delta Air Lines meet its
2024 targets, it would move the company beyond the pre-pandemic
levels of 2019, and begin a new stage of growth for the
company.
Buy Rating: I have
a Buy rating for Delta Air Lines’ stock with a two-year target
price of $70 per share.
With the return of business
travelers and the rise in international travel, Delta Air Lines
should be able to grow its revenues by 10% over the next two years.
Going along with this resurgence in revenues, net margins should
also improve to 8% driven by higher margin, premium tickets from
business class travelers.
With regards to its bottom line,
earnings are estimated to grow over seven-fold from $599 million to
$4.48 billion during the same period. This translates to earnings
per share growing from $0.93 to $7.00 per share.
Finally, the stock’s
price-to-earnings multiple should contract from 30 to 10 times
earnings due to the sharp increase in earnings making the stock
more attractive to investors.
Below is a table contrasting
Delta’s current metrics and stock price to the 2-year estimate:
Delta Air Lines
Current* (as of 9/29/22)
2-Year Estimate
Revenue (in millions)
$41,797
$50,836
Net Margin (%)
1.43%
8.8%
Net Income (in millions)
$599
$4,485
# Outstanding Shares
644,000,000
641,000,000
Net Income per Share
$0.93
$7.00
Price/Earnings ('PE') Ratio
30
10
Stock Price
$28.24
$70
Source of company metrics:
Morningstar, Delta Air Lines
*Current metrics based on TTM
2022 2nd quarter results.
The combination of the resurgence
of international travel and the return of corporate travel bodes
well for Delta Air Lines to not only return its revenues and
earnings to pre-pandemic levels but to begin to exceed them and
return the company to sustained profitability.
As the #1 ranked airline according
to Drag race onlyfans based on customer satisfaction, Delta could
return to being the most profitable airline among domestic
carriers.
Tom White is an investor and entrepreneur with over 25 years
experience. He is a retired investment manager, and was formerly
Principal of CAP Partners, LLC, a wealth management firm that he
founded and sold. Tom has over 25 years experience in the
investment management industry having successfully managed money
through the dot com bubble of 2000-2002 and through the credit
crisis of 2008-2009. He received his Bachelor’s degree from Loyola
Marymount University in Los Angeles. He is a Fulbright-Hays
scholar.
Disclosure:I/we have no stock,
option or similar derivative position in any of the companies
mentioned, and no plans to initiate any such positions within the
next 72 hours.I wrote
this article myself, and it expresses my own opinions. I am not
receiving compensation for it (other than from Seeking Alpha). I
have no business relationship with any company whose stock is
mentioned in this article.
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