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Delta vs. Alaska Air: Which Airline Stock is a Better Buy?

The resurgence of COVID-19 cases has started to dampen the demand for leisure travel. Many U.S. airline operators expect the virus’ Delta variant to undermine the industry’s recovery prospects through the fall. Thus, the shares of well-known airline carriers Delta (DAL) and Alaska Air (ALK) are expected to remain under pressure. But let’s discuss if either of these stocks is a buy at its current price level considering the industry’s long-term growth prospects. Read on.

Delta Air Lines, Inc. (DAL) in Atlanta, Ga., and Alaska Air Group, Inc. (ALK) in Seattle, Wash., are two popular airline operators in the United States. DAL provides scheduled air transportation for passengers, freight, and mail over a network of routes worldwide. It offers flight status information, bookings, baggage handling, and other related services. In comparison, ALK provides passenger and cargo air transportation services. The company operates through Mainline; Regional; and Horizon segments.

Although 50.3% of the U.S.’ vaccination eligible population is now fully vaccinated for COVID-19, the demand for leisure travel, which increased earlier this summer, has started to decline with the rapid spread of the COVID-19 Delta variant. In fact, many airline operators expect the resurgence of COVID-19 to darken the industry’s recovery prospects through the fall. So, both DAL and ALK could  witness a decline in passengers in the coming months.

While DAL’s stock has gained 17.9% in price over the past nine months, ALK has surged 34.1%. ALK is also a clear winner with 52.5% gains versus DAL’s 39.3% in the past year’s performance. But, given the industry's near-term prospects, are either of these stocks worth buying now? Let’s see how they compare in terms of financials and growth prospects.

Latest Movements

On August 11, 2021, DAL announced the launch of a new Air+Rail program in partnership with Thalys, a French-Belgian high-speed train operator, to provide fast rail connections between Amsterdam and the Belgian cities of Brussels and Antwerp. The program enables customers to seamlessly transfer between plane and train at Amsterdam’s Schiphol airport with one-ticket booking. Offering power outlets at each seat and Wi-Fi on every Thalys’ train, both  companies expect to  provide  a better customer experience and convenient train service across European destinations with the program.

This month ALK added a new service to connect guests throughout the San Francisco Bay Area to three new nonstop destinations in Mexico from San Francisco International Airport, beginning this winter. By following all safety measures and providing inflight internet or satellite Wi-Fi  on most of its flights, the company hopes to  capitalize on the service this winter.

Recent Financial Results

For its fiscal second quarter, ended June 30, 2021, DAL’s total operating revenue increased 385.4% year-over-year to $7.13 billion. The company’s operating income has been reported $816 million for the quarter, versus a $4.82 billion loss in the prior-year period. DAL’s non-GAAP net loss came in at $678 million, representing a 75.9% year-over-year decline. Its non-GAAP loss per share decreased 75.8% year-over-year to $1.07. As of June 30, 2021, the company had $10.36 million in cash and cash equivalents.

ALK’s total revenues for its fiscal second quarter, ended June 30, 2021, increased 262.7% year-over-year to $1.53 billion. The company’s operating income has been reported at $549 million for the quarter, versus a  $288 million loss in the year-ago period. While its non-GAAP net loss decreased 91.3% year-over-year to $38 million, its non-GAAP loss per share decreased 91.6% year-over-year to $0.30. The company had $1.03 billion in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

DAL’s revenue has declined at a 24.8% CAGR over the past three years. However, its total assets increased at a 10.5% CAGR over the past three years.

Analysts expect DAL’s revenue to increase 66.4% year-over-year in the current year and 42.4% next year. Its EPS is expected to remain negative this year. Analysts expect DAL’s EPS to decline at a 23.7% rate  per annum over the next five years.

In comparison, ALK’s revenue has declined at a 21.9% CAGR over the past three years. Conversely, its revenue has increased at a 9.9% CAGR over the past three years.

Analysts expect ALK’s revenue to increase 75.1% year-over-year in the current year and 37.1% next year. Its EPS is expected to remain negative this year. The stock’s EPS is expected to decline at a rate of 23.4% per annum over the next five years.

Profitability

DAL’s trailing-12-month revenue is 4.8 times ALK’s. However, ALK is more profitable, with a 0.27  asset turnover ratio  versus DAL’s 0.25.

Both the stocks have negative profitability ratios based on other profit margins.

Valuation

In terms of forward EV/Sales, DAL is currently trading at 1.65x, which is 27.9% higher than ALK’s 1.29x.

DAL’s 100.94x forward EV/EBITDA is 518.9% higher than ALK’s 16.31x.

POWR Ratings

Both DAL and ALK have overall C grades, which translate to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, each weighted to an optimal degree.

Both the stocks have a B grade for Sentiment, which is consistent with favorable analysts’ estimates about their year-over-year earnings growth. Analysts expect DAL’s revenue to be $8.65 billion for the current quarter, ending September 30, 2021, representing a 182.5% year-over-year improvement. ALK’s revenue is expected to increase 75.1% year-over-year to $1.95 billion for the current quarter, ending September 30, 2021.

In terms of Stability, both the stocks have been graded a D, which is in sync with their high volatility compared to the broader market. DAL has a 1.41 beta, while ALK’s beta is 1.77.

Of the 31 stocks in the Airlines industry, DAL is ranked #10, while ALK is ranked #2.

Beyond what we’ve stated above, our POWR Ratings system has also rated DAL and ALK for Momentum, Growth, Value, and Quality. Get all DAL ratings here. Also, click here to see the additional POWR Ratings for ALK.

The Winner

Amid surging COVID-19 cases, which could significantly dampen the recovery prospects of the airline industry, it could be wise to wait for better entry opportunities in both DAL and ALK.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the only top-rated stock in the Airlines industry.


DAL shares were trading at $40.40 per share on Thursday afternoon, down $0.90 (-2.18%). Year-to-date, DAL has gained 0.47%, versus a 19.70% rise in the benchmark S&P 500 index during the same period.



About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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