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How Strong Is Delta Air Lines’ Liquidity Position?


Jun. 11 2020, Updated 9:32 a.m. ET

Delta Air Lines (NYSE:DAL) stock fell close to 2% in extended trading on Wednesday. The stock fell due to reports that the airline is selling notes to raise funds. The coronavirus outbreak has impacted the airline’s revenue. Delta Air Lines plans to raise an additional $1.25 billion from the sale of its 7.375% notes due in 2026. The company wants more cash for general corporate purposes and to repay outstanding debt.

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In an SEC filing dated June 10, Delta Air Lines disclosed that it expects its second-quarter sales to decrease by almost 90% compared to the second quarter of 2019. The company reported sales of $12.54 billion in the second quarter of 2019. A 90% decline in sales would result in $1.25 billion. Delta Air Lines also expects an 85% drop in capacity compared to the second quarter of 2019.

According to a MarketWatch report, “Delta said it expects to reduce its daily cash outflow to $40 million by the end of June, down from the $100 million a day it was losing back on March 31, and hopes to reduce that to zero by the end of December.” The report added, “this improvement in average daily cash outflow would result from modest continued demand recovery, particularly with domestic leisure travel beginning to return as states lift shelter-in-place orders, and additional cost-cutting initiatives.”

Delta Air Lines’ Q1 performance

In the first quarter of 2020, which ended in March, Delta Air Lines delivered revenue of $8.59 billion—a reduction of 18% YoY (year-over-year). Wall Street expected revenue of $8.92 billion. The company posted an adjusted EPS of -$0.51, which beat the consensus estimate of -$0.70.

Wall Street analysts expect Delta Air Lines to report a non-GAAP EPS of -$4.39 on revenue of $1.36 billion in the second quarter. Analysts also expect the company’s sales to fall by 54.9% YoY in 2020 to $21.2 billion. The sales could rise by 63.2% YoY to $34.61 billion in 2021. Meanwhile, the non-GAAP EPS will fall from $7.31 in 2019 to -$6.89 in 2020. Analysts expect a non-GAAP EPS of $3.04 in 2021.

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Analysts’ recommendations

Among the 18 analysts following Delta Air Lines stock, 11 recommend a “buy,” while seven recommend a “hold.” None of the analysts recommend a “sell.” Wall Street analysts’ mean target price on the stock is $35.13, which implies an 11.0% gain from the current level of $31.64. The consensus target price for the stock has risen from $34.13 in May—a growth of 2.9%.

Stock returns

Delta Air Lines stock fell 7.4% on Wednesday and ended the day at $31.64. At this closing price, the company’s market cap is $20.2 billion. Notably, the stock is trading 50.1% below its 52-week high of $63.44 and 80.7% above its 52-week low of $17.51.

Based on the closing price on Wednesday, Delta Air Lines stock was trading 20.9% above its 20-day moving average of $26.17. The stock is also trading 29.4% above its 50-day moving average of $24.46 and 12.5% below its 100-day moving average of $36.14. Delta Air Lines’ 14-day relative strength index score is 60. The score suggests that the stock isn’t overbought or oversold.

On Wednesday, American Airlines (NASDAQ:AAL) and United Airlines (NYSE:UAL) stocks declined 8.25% and 11.02%, respectively. Airline companies aren’t certain about the demand for future air travel.

Today at 7:22 AM ET, Delta Air Lines stock fell 12.9% to $27.54 in the pre-market session. At the same time, the S&P 500 futures fell 1.9%, while the Dow futures fell 2.3%. To learn more, read US Stock Market Crash Patron Druckenmiller ‘Humbled.’


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