Incorporated in 1924, Delta Air Lines Inc. (DAL) operates scheduled passenger and freight flights across the United States and internationally. In addition, the Atlanta, Ga.-based company offers third-party customer vacation packages, aircraft charters, aircraft maintenance, repair, and overhaul services.

Closing yesterday’s trading session at $33.53, the stock has declined 17.1% in price over the past month, due mainly to concerns over the airline industry’s recovery with the emergence of the omicron variant, which could spell  fresh travel restrictions.

As governments worldwide tighten international travel restrictions, investors fear a slowdown in future bookings and delays in the industry’s already sluggish recovery. This, along with DAL’s already poor profitability, might cause  the stock to remain under pressure in the near term.

Here is what could shape DAL’s performance in the near term:

Industry Headwinds

According to analysts, airlines worldwide are bracing themselves for more volatility due to the newly emerged COVID-19 omicron variant, which may require them to rearrange schedules and destinations on short notice and rely more on domestic markets. Several nations, including Japan, the United States, the United Kingdom, and Israel, have enforced travel restrictions to contain the spread of the new variant. Credit rating agency Fitch Ratings revised its global outlook downward on Tuesday, stating that the advent of the new  variant is expected to make the recovery of global air travel less certain.

Poor Profitability

DAL’s 0.32% trailing-12-months asset turnover ratio is 59.3% lower than the 0.79% industry average. Also, its ROA, ROC, and net income margin are negative 6.4%, 0.09%, and 03%, respectively. Furthermore, its trailing-12-months gross profit margin is negative 1.8%, versus the 29.6% industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the 12 Wall Street analysts that rated DAL, six rated it Buy, and six rated it a hold. Closing yesterday’s trading session at $33.53, the 12-month median price target of $52.3 indicates a 55.9% potential upside. The price targets range from a low of $46 to a high of $62.

Unfavorable POWR Ratings

DAL has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DAL has a D grade for Stability and Momentum. The stock’s 1.30 beta is consistent with the Stability grade. In addition, the stock is currently trading below its 50-day and 200-day moving average of $41.47 and $43.72, respectively, which is in sync with the Momentum grade.

Of the 31 stocks in the F-rated Airlines industry, DAL is ranked #14.

Beyond what I have stated above, we have rated DAL for Sentiment, Growth, Quality, and Value. Get all DAL ratings here.

Bottom Line

Despite being a prominent player in the international airlines industry, DAL’s weak profitability is a concern. This, coupled with increasing international travel restrictions due to the omicron  variant, threatens its recovery prospects. While the variant hasn’t yet affected domestic U.S. travel, we think investors should wait until the industry’s prospects stabilize before investing in the stock.

How Does Delta Air Lines Inc. (DAL) Stack Up Against its Peers?

While DAL has an overall POWR Rating of C, one  might want to consider looking at its industry peer SkyWest Inc. (SKYW), having an overall B (Buy) rating.

DAL shares were trading at $36.23 per share on Thursday afternoon, up $2.70 (+8.05%). Year-to-date, DAL has declined -9.90%, versus a 23.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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