DAL) is up about 7% in the last month, but DAL stock is still too cheap and is likely to undergo a major turnaround within the next year.” data-reactid=”12″>Delta Air Lines (NYSE:DAL) is up about 7% in the last month, but DAL stock is still too cheap and is likely to undergo a major turnaround within the next year.
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One of the reasons for this is a huge pent-up demand for travel. People will start traveling again once a vaccine is available. In effect, it is just a matter of time.
an interview with Bloomberg. The CIO for PIMCO (Pacific Investment Management Company) said: “… if we get an economic recovery, if this mobility data takes off, you are going to see the airlines take off, people start to travel over the next 6, 12, 18 months, and that’s the potential next wave of the rally.”
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As a result, PIMCO is overweight in its $1.9 trillion credit investments in the travel sector. Moreover, despite a poor Q2 earnings report, analysts are starting to recommend DAL stock.
What Analysts Say About Delta
“buy” on DAL stock, according to Barron’s. He says that demand resumption will be “gradual and uneven.”
But he believes the airline has solid long-term positioning. It has 19 months of liquidity, having cut cash burn to $27 million a day. And it is still leaving middle seats open until Jan. 2021, which differentiates it from other airlines.
“hold” recommendation on Delta Air Lines.
before there will be a “flip switch” with the public about traveling on airlines at higher levels.
UAL) to eliminate domestic change fees, which was immediately copied by other airlines, including Delta, will cost.” data-reactid=”42″>Moreover, the Wall Street Journal recently painted a very cut-throat picture of how competition is now hurting the airlines’ strategic fees. The move by United Airlines (NASDAQ:UAL) to eliminate domestic change fees, which was immediately copied by other airlines, including Delta, will cost.
So in the end it gets down to a wide availability, efficacy, and acceptance of a vaccine solution before Delta Air Lines and DAL stock take off again.
Where DAL Stock Is Headed
Even if that is the case, I believe that DAL stock will likely turn around at a faster pace. Markets will anticipate recovery in the airline’s prospects sooner than expected.
For example, Delta stock is roughly at about half its previous 2019 peak of $62 per share. Let’s say it takes two and a half years before DAL stock reaches its previous peak (using a 12 month forward discount by the market). That implies roughly a 100% move by DAL stock over 2.5 years, or a 40% annualized rate of return.
However, on a compounded basis, the stock would actually only need to rise 31.95% annually over that period in order to double by the end of two and a half years. Nevertheless, that is still a pretty good return.
And remember that is just a baseline expectation. I highly suspect that once there is a vaccine, the markets will rotate heavily into travel stocks like Delta. That may be jumping the gun, so to speak. But this often happens these days, as investors try to outdo each other in terms of forecasting the future.
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