Delta Air Lines, Inc. (NYSE:DAL) stock has hit a bit of turbulence this year, with Delta stock down almost eight percent since the start of the year. Airline stocks have been getting pushed lower as the price of oil dropped over the last few months. One would think that the drop in oil prices would be a boon to airline stocks such as DAL stock, but it’s been the opposite. Investors apparently think the drop in oil prices is a sign of a slowing global economy, which means there will be less demand for travel.
But the negative sentiment on airline stocks is providing a great opportunity for investors to take a look at picks like Delta stock.
At least that’s the verdict from a couple of Buckingham Research analysts. Buckingham’s Daniel McKenzie and Scott Park reiterated a “Buy” rating and $75.00 price target on Delta stock—that’s about a 60% upswing from DAL stock’s current price.
The analyst’s thesis is that with the hits Delta stock has been taking so far this year, and with the stock price trading at only 6.5 times the company’s forward earnings, DAL stock looks like a bargain. At its price, Delta offers a compelling risk/reward profile, the analysts noted. (Source: “Delta Has 63% Upside, Buckingham Says,” Benzinga, March 9, 2016.)
“In short, $17B in pre-tax profits this year and next is a disconnect from both a $37.0 billion market cap, and, as of mid-Feb, an investment grade rated balance sheet,” the analysts said of Delta stock. (Source: Ibid.)
Aside from a cheap price, there is a lot to be upbeat about on Delta stock.
With oil prices down, Delta is going to save a lot of money. In 2015, Delta’s fuel costs were reduced by 44%, allowing the company to save about $809 million. (Source: “Delta Air Lines Announces December Quarter and Full Year 2015 Profit,” Delta Air Lines, Inc., January 19, 2016.) Delta is also undergoing cost-cutting initiatives, such as retiring most of its fleet of 50-seat regional jets, which are expensive to operate. All in all, Delta expects to save more than $3.0 billion in 2016 from lower fuel prices and numerous operational efficiency initiatives. (Source: Ibid.)
Delta’s cost savings will also be a boon for dividend investors. Some of that free cash will be used to return to shareholders in the form of dividends or buybacks. Delta has boosted its dividend by 50% each year for the last two years. Plus, Delta’s board authorized a $2.0-billion share repurchase program a couple of years ago that should be completed by the end of 2016. DAL stock currently has a dividend yield of 1.11%.
The Bottom Line on DAL Stock
With stock selling on the cheap and with the company making significant cost savings, Delta stock could be worth a closer look from investors.