Company Profile (excerpt from Reuters): Delta Air Lines, Inc., incorporated on March 16, 1967, provides scheduled air transportation for passengers and cargo throughout the United States and across the world. The Company’s segments include Airline and Refinery. The Company’s route network is centered around a system of hub, international gateway and airports that the Company operates in Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Minneapolis-St. Paul, New York-LaGuardia, New York- John F Kennedy International Airport, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Each of these operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub or gateway to domestic and international cities and to other hubs or gateways. The Company’s route network includes its international joint ventures, its alliances with other foreign airlines, its membership in SkyTeam and agreements with multiple domestic regional carriers that operate as Delta Connection. Its subsidiaries include Monroe Energy, LLC and MIPC, LLC (collectively Monroe).
Downloadable PDF version of this valuation:
ModernGraham Valuation of DAL – January 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $32,258,373,426 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.35 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 476.21% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 8.28 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.35 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.35 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -0.67 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $5.68 |
| MG Growth Estimate | 2.86% |
| MG Value | $80.81 |
| Opinion | Undervalued |
| MG Grade | B- |
| MG Value based on 3% Growth | $82.35 |
| MG Value based on 0% Growth | $48.27 |
| Market Implied Growth Rate | -0.11% |
| Current Price | $47.04 |
| % of Intrinsic Value | 58.21% |
Delta Air Lines, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.77 in 2015 to an estimated $5.68 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.11% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Delta Air Lines, Inc. revealed the company was trading below its Graham Number of $52.28. The company pays a dividend of $1.31 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 8.28, which was below the industry average of 9.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-58.71.
Delta Air Lines, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$58.71 |
| Graham Number | $52.28 |
| PEmg | 8.28 |
| Current Ratio | 0.35 |
| PB Ratio | 2.35 |
| Current Dividend | $1.31 |
| Dividend Yield | 2.78% |
| Number of Consecutive Years of Dividend Growth | 6 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $6,495,000,000 |
| Total Current Liabilities | $18,754,000,000 |
| Long-Term Debt | $8,270,000,000 |
| Total Assets | $60,270,000,000 |
| Intangible Assets | $14,610,000,000 |
| Total Liabilities | $46,593,000,000 |
| Shares Outstanding (Diluted Average) | 683,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $6.09 |
| Dec2018 | $5.67 |
| Dec2017 | $4.95 |
| Dec2016 | $5.79 |
| Dec2015 | $5.63 |
| Dec2014 | $0.78 |
| Dec2013 | $12.29 |
| Dec2012 | $1.19 |
| Dec2011 | $1.01 |
| Dec2010 | $0.70 |
| Dec2009 | -$1.50 |
| Dec2008 | -$19.08 |
| Dec2007 | $2.11 |
| Dec2006 | -$31.58 |
| Dec2005 | -$23.75 |
| Dec2004 | -$41.07 |
| Dec2003 | -$6.40 |
| Dec2002 | -$10.44 |
| Dec2001 | -$9.99 |
| Jun2000 | $8.15 |
| Jun1999 | $7.20 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $5.68 |
| Dec2018 | $5.17 |
| Dec2017 | $5.24 |
| Dec2016 | $5.31 |
| Dec2015 | $4.77 |
| Dec2014 | $3.96 |
| Dec2013 | $4.61 |
| Dec2012 | -$0.67 |
| Dec2011 | -$2.18 |
| Dec2010 | -$5.81 |
| Dec2009 | -$10.96 |
| Dec2008 | -$18.02 |
| Dec2007 | -$18.37 |
| Dec2006 | -$26.62 |
| Dec2005 | -$22.21 |
| Dec2004 | -$18.27 |
| Dec2003 | -$5.35 |
Recommended Reading:
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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