Delta Airlines Stock Is Cheap

Delta Airlines stock analysis.
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The travel industry is booming right now. Airline passenger numbers have returned to pre-pandemic levels. Last week, Delta Airlines reported record revenues of 15.6 billion for the quarter and the stock is up 42% year to date.

At the current share price, Delta has a market cap of 30 billion. It’s got 8.5 billion of cash and investments and 18 billion of debt. So the enterprise value is just under 40 billion.

Revenue over the last 12 months is 55.8 billion which is almost 20% above the 2019 peak.
Net income, however, at 3 billion is still 37% below the peak. One reason is that Delta had to take on a lot of debt during the pandemic and that is costing the company almost a billion dollars a year in interest payments.

But Delta is optimistic it can pay the debt off over time. And management gave an encouraging outlook. It thinks revenue will grow between 17-20% this year with an operating margin above 12%. Free cash flow is expected to cruise above 4 billion in 2024. That means Delta stock is now valued at only 8 times next years free cash flow.

A key part of the investment case for Delta is its diversified revenue streams in particular its SkyMiles partnership with American Express. In an interview on CNBC, JP Morgan analyst Jamie Baker said that close to 1% of US GDP is now being charged on co-branded Delta American Express credit cards. This is a lucrative venture for Delta and could contribute almost 7 billion in revenue this year. That’s 63% growth since 2019.

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