Is Delta’s Stock Ripe for Holiday Picking?

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T = Trends Support the Industry in which the Company OperatesInjured Piggy Bank WIth Crutches

It’s interesting to note that at the end of 2008, shares of Delta closed around $11.45 while their losses per share for the year were $19.08. Delta emerged from bankruptcy in 2007 to turn a profit of $1.61 billion, only to lose $8.92 billion in 2008. With such a high degree of historic risk and such apparently low returns, it’s a wonder investors want to put their money into airline stocks.

A global economic downturn absolutely crushed much of the airline industry, which is particularly sensitive to consumer demand in a weak economy. As things got better in 2011 to early 2012, Delta rallied something like 24 percent. Despite an economic condition that is not improving at a satisfactory pace and ongoing concerns over fuel prices, the industry is returning to stability. Delta has a beta of 0.67, with industry peers like US Airways Group (NYSE:LCC) and Southwest Airlines (NYSE:LUV) clocking in at 0.46 and 0.9, respectively.

Air travel is not going anywhere, and it won’t for the foreseeable future. As one of the largest airline companies in the world, Delta has the potential to easily run over a billion in profit and it’s . The company – and the industry – has performed well recently, and that’s not to say that future downturns won’t happen, but the company is getting smarter about how it manages itself. As the airline industry once again organizes itself into a profitable institution, shareholders could stand to benefit from Delta’s aggressive cost-cutting and debt-reduction strategy.

Airlines for America provided a financial review for the first nine months of the year. The report points out that while jet fuel costs rose to a record $3 per gallon in 2011, 2012 is trending higher at $3.08 per gallon. However, since recent highs in August, the price of oil has been trending downward.

The report also notes that while industry revenues rose 5.6 percent on average, costs rose 6.2 percent, reducing profit margins to 0.2 percent.

Conclusion

“Delta’s strong September quarter results combined with industry-leading operations and customer service reflect an improved industry structure and our consistent investment in the business. We will continue on this path as we progress into 2013,” said CEO Richard Anderson in the earnings release.

That being said, airlines are subject to forces beyond their control, like the global economic condition. But as basic faith suggests that things will get better, Delta is poised to capitalize in a post-recession market that is ready to start flying in mass again. However, right now that market looks to be at least a few quarters away.

Because of this, and the metrics above, Delta is a WAIT AND SEE. Conditions are not yet right for a Delta rally and fourth quarter blows like Sandy suggest that the coming months will force the company to stay smart and further strengthen its position before its ready to take off.

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