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Bear of the Day: Delta Airlines (DAL)

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One of the four major airline carriers in the U.S., Delta Airlines (DAL - Free Report) is based in Atlanta, GA and was the second airline company to join the S&P 500. Delta generates the majority of its net sales from its passenger revenue segment, which is made up from ticket sales, loyalty travel awards, and travel-related services.

Big Loss in Q3

Overall, Delta posted big losses on both the top and bottom lines, but this was expected. Adjusted revenue was $2.65 billion, down 79% year-over-year, while adjusted net loss fell to $3.30 per share.

But beyond the awful headline numbers, the airline giant is actually making progress towards a post-pandemic recovery.

Delta has been aggressively reducing structural costs by retiring different kinds of aircraft types, cutting overhead spending, and rolling out a voluntary early retirement program. It’s also implemented short-term cost cuts like temporary leaves for employees this year and reducing maintenance spending.

These moves allowed the company to lower adjusted operating expenses by 52% in Q3.

Cash burn also improved, with average daily cash burn of $24 million last quarter (compared to around $100 million a day in late March).

Delta ended Q3 with $21.6 billion in liquidity, and expects to end 2020 with $16 billion in liquidity.

Bottom Line

DAL is now a Zacks Rank #5 (Strong Sell).

Seven analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen over one dollar to a loss of $10.52 per share; earnings are expected to see a triple-digit decline for the current fiscal year.

Shares are actually up since the March lows, rising about 50%, which is roughly in line with the S&P 500’s rebound during the same time frame.

Even though shares have run up over the past few months, Delta will still have a hard road ahead of it, especially as coronavirus cases are on the rise once again. But, with plans to defer now-unneeded aircraft deliveries to 2022 and beyond, as well as continually improving its cash burn, Delta looks to be on the right path to recovery.

Delta isn’t the only carrier suffering right now; Covid-19 has impacted the entire industry. It’s probably best to avoid airline stocks like for the time being.

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Delta Air Lines, Inc. (DAL) - free report >>