Imperial Capital Starts Delta Air Lines (DAL) at In-Line
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Imperial Capital initiates coverage on Delta Air Lines (NYSE: DAL) with a In-Line rating and a price target of $41.00.
Analyst Michael Derchin commented, "As the first network airline to recognize the risks inherent in the cyclical airline industry and put into place a plan to de-risk its business, identify financial goals, and reward stakeholders, we believe DAL is the highest quality airline among the Big 3, which, in addition to DAL, includes American Airlines (AAL) and United Airlines (UAL). However, a number of unexpected macro events have occurred over the past couple months that suggest to us that more caution, at least short term, is prudent. The biggest surprise was Brexit and its potential impact on U.K. business travel for DAL and its U.K. partner, Virgin Atlantic. At the same time, DAL and its Continental Europe partner, Air France/KLM, have been adversely impacted by deteriorating economic, social, and terrorism problems in Europe. DAL has been arguing for a higher multiple based on its superior margins, free cash flow yields, an investment grade corporate credit rating, and financial metrics on par with quality cyclical stocks in other industries."
In our view, as long as investors treat the stock like Rodney Dangerfield ("With no respect"), it is likely to be range bound until DAL can demonstrate margin improvement from both the revenue and cost sides of the profit equation. As the first airline to adopt a Branded Fares strategy that optimizes the service/price tradeoff offered to customers, we believe DAL may be the first airline among the Big 3 to report flat RASM and a pathway to positive results, which we anticipate by the 4Q17."
Shares of Delta Air Lines closed at $36.69 yesterday.
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