Is Delta Stock A Sell?

Delta Air Lines, Inc. (NYSE:DAL) is one of the largest airlines on the planet and a legacy carrier in the United States. The company was devastated when flights were grounded around the world.

Now that its stock has recovered about half of its losses, some investors are wondering whether it’s time to cut and run, or in other words is Delta stock a Sell?

Airlines have a long way to recover, and many analysts believe it will take a year or more to regain their regular cruising altitude in terms of share price levels.

In order for travel to return to normal next year, analysts need to be very optimistic. After all, the odds of the pandemic being quashed anytime soon are low. And vaccine efficacy is anything but certain.

Will there finally be clear skies ahead for Delta’s investors?

Why Did Delta Drop?

DAL share price crashed with the closure of airports around the world in March 2020. The coronavirus pandemic caused travel restrictions that effectively destroyed the industry for half the year. Even as they reopen, planes are flying at reduced capacity to adhere to CDC social distancing guidelines.

The U.S. Bureau of Transportation Statistics (BTS) reported June airline travel numbers were down 80.3 percent from 2019. Still, numbers continue to climb as people slowly start traveling more for the holidays and move to suburban and rural America to work virtually.

This environment chokes growth potential across the board for all travel- and tourism-related stocks, including Delta.

It forced a $5.4 billion bailout in April and another $6.5 billion bailout from the government in September to stay afloat. This gives the company a heavy debt load that will likely anchor Delta stock from taking off.

And it’s unclear when airline travel will return to normal or even grow. This has some investors wondering when is the best time to sell?

Is Delta Stock A Sell?

Delta Airlines stock hit a 52-week low of $17.51 at the onset of the pandemic from a high of $62.48 in the months prior.

The stock rose about 30 percent from its November low and has been hovering around the $40 mark as uncertainty surrounds its winter top and bottom line figures.

When Covid-19 cases rose in December, many people chose to either stay home or find other means of travel. Lower demand isn’t the company’s only problem.

Delta isn’t just competing with other airlines. It’s also competing with rental cars, staycations, and other ways of spending the holidays. RVs, for example, have become much more popular as consumers realize they can getaway on the roads without being subjected to airport screenings and risks of being in close proximity to others.

If Delta shares reclaim their old highs, it could take months or even years to get there. Delta saw an uptick in Thanksgiving travel, but there’s not guarantee overall flight volumes will resume anytime soon.

With major events like CES Las Vegas, SXSW, and the Times Square NYE ball drop are going virtual, it’s unclear what reasons people will have to travel in 2021. That’s just one obstacle investors face.

Risks Of Buying Delta Stock

Although the economy is recovering, Delta needs to shed debt with revenues it receives. Its frequent flier program (called SkyMiles) is now collateral for a $9 billion loan taken in September 2020. The earnings report for its September quarter showed a $6.9 billion loss on revenue of $3.1 billion.

It reported nearly 80 percent year-over-year revenue declines with 63 percent lower passenger capacity.

Total debt on its books is $34.9 billion, which is adjusted to $17.0 billion in net debt and has a weighted average interest rate of 4.3 percent on that debt.

Should passenger demand stay low for the foreseeable future, the company is going to continue to feel a financial squeeze.

The biggest risk of investing at Delta at this point is that consumer behavior has permanently changed and flight volumes will take much longer than expected to recover. Revenues are likely to be choked by limited passenger volumes.

You may not beat the market for the next year if you invest in Delta now. However, if you bought in at the low looking for a recovery, there’s hope to hold on longer.

Will Delta Stock Recover?

If Thanksgiving airport traffic is to be believed, there are signs of hope on the horizon for Delta.

Travelers are taking the risk of spreading the virus to get out of the house and visit family to celebrate holiday traditions. It’s almost inevitable, but so too is another wave of the virus that’s killing an increasing number of people each day and pushing hospitals beyond capacity.

Another wave of government restrictions already came as many cities around the country implemented curfews and other measures. There’s no guarantee that the chaos of protests, demonstrations, and riots won’t return and slow economic recovery.

And unemployment is still at double the rate it was prior to the pandemic. Claims are continuing to be filed, and markets are slowing in general in December. Only the announcement of widespread vaccinations in production and distribution will keep things going.

Should that happen, Delta may soar to new heights in 2021 as travel grows to rival prior years.

Is Delta Stock A Sell? The Bottom Line

Delta is one of the largest airlines in the world, and this behemoth got grounded during the coronavirus pandemic. Widespread travel restrictions caused by the infectious virus stifled travel demand, but things started looking up by Thanksgiving.

The rollout of COVID-19 vaccinations alongside governments weighing their options for reopening travel bodes well for airlines. Of course, it’s going to be a slow road, and we already see major events across the country remaining virtual through March 2021.

By summer 2021, however, there’s a good chance pandemic fears will subside, and investors will be more enthusiastic about their airline investments. Until then, expect some share price turbulence, as the market reacts to a variety of socioeconomic, health, financial, and risk factors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.