Breaking News
0

Delta Airlines Vs. American Airlines: Which Is A Better Buy?

By Sayat KartabayevStock MarketsOct 16, 2018 01:41AM ET
www.investing.com/analysis/delta-airlines-vs-american-airlines-which-is-a-better-buy-200348580
Delta Airlines Vs. American Airlines: Which Is A Better Buy?
By Sayat Kartabayev   |  Oct 16, 2018 01:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Airlines experienced a resurgence in recent years as investors flocked to these once hated stocks. After the September 11th, 2001 attacks the ARCA Airline dropped from $180 to $120. It barely peaked above $60 before tanking to $15 with the rest of the market in 2009. Since then the index increased 8x through 2017.

Delta Airlines (NYSE: NYSE:DAL) exited bankruptcy in 2007. Shares dropped from an open at $19.10 per share down below $4 a share in 2009. Yet, the stock took off to over $60 a share through 2017. Their current share prices reflect modest growth but a low P/E and good value.

American Airlines Group (NASDAQ:AAL) saw a high of $62 a share in 2007 to crash down below $2 a share in 2009. Yet, in 2018 the stock hit a high of $58 a share, 29x it's low. With a rock-bottom P/E of 6.06x and a great PEG ratio, why wouldn't you want to own AAL?

Looking at Delta Airlines vs. American Airlines across a handful of metrics, it becomes apparent that American Airlines is a value trap.

Valuation: American Airlines
American Airlines and Delta Airlines both present a good value. Neither trades above the single digits in terms of price to earnings. Both trade in-line on a forward P/E basis compared to their current P/E. Across all the valuation metrics DAL trades at a higher multiple than AAL.

Delta's higher growth rate gives it higher multiples in every category. However, comparing the price to earnings growth, American Airlines still appears to be the cheaper alternative. With AAL prices depressed on valuation, any turn in growth provides the stock price a quick boost.

Source: Schwab

Growth: Delta Airlines
Delta Airlines presented much better earnings and growth in recent years. Compared to American Airlines, Delta put up 8.85% growth vs. American's 5.05% growth. The 5-year growth would appear to paint a different picture. However, AAL merged with US Airways to effectively double sales. Their growth remained subpar when considering this acquisition. DAL not only keeps acquiring more business travelers but manages to do so with a better margin. Their growth in earnings remains substantial and is expected to continue. American Airlines is expected to continue to suffer from higher fuel prices.

Source: Charles Schwab (NYSE:SCHW)

Profitability: Delta Airlines
At first glance, American Airlines shows a higher gross margin. Yet, they quickly fall short once you get down to the operating margin. Both companies continue to suffer from higher fuel costs as they deal with the rise in oil over $70 per barrel. Neither hedges their fuel costs which means that they take the full brunt of the effect when oil trades higher and the benefits when it trades lower.

However, the difference lies in how they manage their business. DAL continues to maintain its overheads and operations more effectively than AAL. Comparatively, they drive nearly 50% more sales per employee than AAL. That says something, given the positive survey results DAL still achieves.

In fact, American Airlines' operating margin declined from a higher of 17.6% in 2015 to a low of 8.8% TTM. Compare that to Delta Airlines' who went from 17.5% to 12.4%. The evidence grows that better fuel management strategies favor DAL.

Source: Charles Schwab

Efficiency: Delta Airlines
Delta Airlines continues to bring in business clients. They've led in most consumer surveys and done a good job keeping costs down. Compared to AAL, DAL performs better on returns on assets and investments. Return on equity has remained skewed due to AAL's negative shareholder equity.

Source: Charles Schwab

Financial Strength: Delta Airlines
A quick look at the financial health of these airlines shows both on about equal footing. Yet, one major issue exists for American Airlines. Right now it shows negative shareholder equity. While it's not something they are unaccustomed to, Delta Airlines doesn't have that problem. Negative shareholder equity signals problems to any investors.

Shareholder equity equals total assets minus liabilities. While operating cash flow comes in at $3.69 billion, free cash flow comes in at -$819 million. Capital-intensive industries can have these problems at times. Given DAL offers a nice equity line, why bother with AAL? With their current trends, they look more like a company headed for bankruptcy than a stock pick.

Source: Charles Schwab

Source: Morningstar

Overall Winner: Delta Airlines
Airlines operated in a boom and bust environment. What separates the winners from the losers is operating efficiency and value. Delta Airlines continues to promote the business traveler experience and maintain an efficient operation around its fleets. Oil prices hurt both airlines equally as neither hedge these costs. Yet, American Airlines barely keeps itself afloat.

AAL's declining and now negative shareholder equity should scare investors. The economic environment remains strong, and though fuel prices have climbed, the company operated in a soft environment for several years. The failure in these conditions would suggest the company needs a management and strategy change.

Delta Airlines Vs. American Airlines: Which Is A Better Buy?
 
Delta Airlines Vs. American Airlines: Which Is A Better Buy?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email