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Should Value Investors Pick Delta Air Lines (DAL) Stock?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Delta Air Lines, Inc. (DAL - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Delta Air Lines has a trailing twelve months PE ratio of 9.6, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.31. If we focus on the long- term PE trend, Delta Air Lines’ current PE level puts it below its midpoint of 10.62 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.
However, the stock’s PE also compares favorably with the Zacks Transportation Market sector’s trailing twelve months PE ratio, which stands at 15.83. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Delta Air Lines has a forward PE ratio (price relative to this year’s earnings) of 8.35, so it is fair to say that a slightly more value-oriented path may be ahead for Delta Air Lines’ stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Delta Air Lines has a P/S ratio of about 0.83. This is much lower than the S&P 500 average, which comes in at 3.31 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Delta Air Lines currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Delta Air Lines a solid choice for value investors.
What About the Stock Overall?
Though Delta Air Lines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of A and Momentum Score of B. This gives DAL a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed, at the best. The current year has seen two upward revisions compared to one downward revision in the past sixty days, whereas the next year estimate has seen one upward revision compared to two downward revisions in the same time period.
As a result, the current year consensus estimate increased 0.15% in the past two months, whereas the next year estimate declined 0.28%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Owing to such mixed estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Bottom Line
Delta Air Lines is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, the company carries an unfavorable industry rank (bottom 41% out of more than 250 Zacks industries), which makes us cautious about the broader factors.
Moreover, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
Image: Bigstock
Should Value Investors Pick Delta Air Lines (DAL) Stock?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Delta Air Lines, Inc. (DAL - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Delta Air Lines has a trailing twelve months PE ratio of 9.6, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.31. If we focus on the long- term PE trend, Delta Air Lines’ current PE level puts it below its midpoint of 10.62 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.
However, the stock’s PE also compares favorably with the Zacks Transportation Market sector’s trailing twelve months PE ratio, which stands at 15.83. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Delta Air Lines has a forward PE ratio (price relative to this year’s earnings) of 8.35, so it is fair to say that a slightly more value-oriented path may be ahead for Delta Air Lines’ stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Delta Air Lines has a P/S ratio of about 0.83. This is much lower than the S&P 500 average, which comes in at 3.31 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Delta Air Lines currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Delta Air Lines a solid choice for value investors.
What About the Stock Overall?
Though Delta Air Lines might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of A and Momentum Score of B. This gives DAL a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed, at the best. The current year has seen two upward revisions compared to one downward revision in the past sixty days, whereas the next year estimate has seen one upward revision compared to two downward revisions in the same time period.
As a result, the current year consensus estimate increased 0.15% in the past two months, whereas the next year estimate declined 0.28%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Delta Air Lines, Inc. Price and Consensus
Delta Air Lines, Inc. price-consensus-chart | Delta Air Lines, Inc. Quote
Owing to such mixed estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Bottom Line
Delta Air Lines is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, the company carries an unfavorable industry rank (bottom 41% out of more than 250 Zacks industries), which makes us cautious about the broader factors.
Moreover, over the past two years, the broader industry has clearly underperformed the market at large, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>