Delta Air Lines shares rise after Wall Street still says it’s a buy

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Wall Street is coming to the defense of Delta Air Lines, reiterating purchase recommendations after the airline reported second-quarter results that fell short of consensus estimates and offered a bleak outlook for a travel recovery.

Delta shares (ticker: DAL) rose about 5% on Wednesday to $ 27.44, a day after the operator reported a pre-tax loss of $ 7 billion in the quarter and lost earnings per share estimates. . Delta also said it was cutting its August flight schedule in half, to 500 flights, and said it would cut its workforce by 20%, with 17,000 employees leaving by way of shopping and early retirement.

Delta also does not see demand improving much in the short term. The airline expects revenues for the quarter ending in September to fall between 75% and 80% compared to the third quarter of last year. “We have seen that demand growth has recently flattened with the increase in Covid-19 cases.”

Despite the dire prospects, several analysts reiterated the stock purchase ratings.

Delta looks “well armored for a bumpy ride,” wrote Citigroup.‘s
Stephen Trent. The company presented a plan that looks “well contemplated.” It includes 19 months of liquidity, a cautious outlook for flight capacity, and continued blocking of intermediate seats, which sets Delta apart from the airlines that are trying to fill the seats to capacity. Delta also lowered its cash burn rate to $ 27 million per day, down from $ 100 million at the end of March. And while Delta expects a 12-18 month delay in business travel, CEO Ed Bastian said the company is discussing ways to resume travel with key corporate clients.

“Although the resumption of demand for Buy-rated Delta Air Lines should be gradual and uneven, Citi continues to see the airline in a strong long-term position,” Trent writes, maintaining its $ 38 price target.

Bernstein’s David Vernon maintained a higher stock performance rating, but raised his third-quarter earnings estimates and raised his target price to $ 41. A slower recovery is not ideal, he writes, but “does not change the end point. ” Assuming airlines can move forward in the coming months, “the advantage will come as demand recovers rapidly to recessive levels and grows from there.”

Delta has now accumulated enough liquidity, with $ 15.7 billion in cash and funds available, to last until 2022, he adds. The probability that Delta will default on its debt has dropped from 20% to 20%. And she could see the stock valued at more than $ 50 in the midst of an economic recovery cycle, “in stable cash flow.”

Raymond James’ Savanthi Syth writes that the Delta update was encouraging, even though results fell short in the quarter. “We see Delta’s earnings update as better than expected in the context of increasingly negative sentiment following stagnant demand recovery as Covid cases increase,” he writes. Delta’s liquidity looks better than expected, buying the carrier “more room to breathe.” Syth maintained its Outperform rating and its $ 36 price target in the stock.

Cowen’s Helane Becker also reiterated her top performance rating in action. “Cost reduction efforts are the highlight that should drive profit rather than revenue growth in the current environment,” he writes. Delta cut its operating expenses by 53% year-over-year, eliminating $ 5.5 billion in expenses, it says. Delta’s plans to sell 75% to 80% fewer seats in the third quarter mark an improvement over the second quarter, when revenue fell more than 90%. She expects Delta’s capacity to drop 70% in the third quarter, and while the company’s plans to continue blocking middle seats means it will maintain a 60% limit on airplane seats, “it will likely capture customers. who like to have extra space. “

However, Becker cut its earnings estimates for the third quarter, 2020 and 2021, and cut its target price to $ 32 from $ 33. “Overall, the company needs a constant improvement in net cash sales and a partial recovery. in international business to break even, “he writes.

If business travel gets strong again, it’s out of Delta’s control, but the carrier seems to be on the right track to capture that revenue, if it’s at hand.

Write to Daren Fonda at [email protected]