1-Star Stocks Poised to Plunge: Delta Air Lines?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, airline operator Delta Air Lines (NYSE: DAL  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Delta's business and see what CAPS investors are saying about the stock right now.

Delta facts

Headquarters (Founded) Atlanta (1924)
Market Cap $8.0 billion
Industry Airlines
Trailing-12-Month Revenue $36.4 billion
Management CEO Richard Anderson (since September 2007)
CFO Paul Jacobson (since March 2012)
Return on Equity (Average, Past 3 Years) 8.9%
Cash/Debt $3.5 billion / $13.1 billion
Competitors AMR
Deutsche Lufthansa
United Continental Holdings

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 42% of the 932 members who have rated Delta believe the stock will underperform the S&P 500 going forward.

Earlier this summer, one of those Fools, colleague Justin Loiseau (TMFJLo), succinctly summed up the Delta bear case for our community:

Delta suffers from the worst fuel efficiency of any airline. It suffers from lackluster customer confidence and has the oldest fleet of any major airline. It is reinvesting too slowly and its corner-cutting will continue to push it further behind competition.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 16, 2012, at 2:45 PM, tbirdreg wrote:

    The observations about Delta are right on target. When I worked at NWA, which was absorbed by Delta 4 years ago, we had Anderson as the CEO. It was the same story.... lack of consumer confidence, poor fleet efficiency, and reinvesting too slowly or not at all. That is what cause NWA to go down the tubes. Now Delta has adopted that same strategy. The latest is the leasing of AirTran/Southwest's used Boeing 717, they are in effect replacing the DC9-50s which are 40+ years old with a new version of the airplane no one wants to fly on.

  • Report this Comment On September 17, 2012, at 3:19 AM, mariposa12345678 wrote:

    i not agree Justin Loiseau on Delta airline ,because heavily inside buying at this price & almost 100% hedge on fuel ,forward PE at only 4.

  • Report this Comment On September 17, 2012, at 12:13 PM, counterforce wrote:

    Great, so we should base our investing decisions on the comments of one wannabe airline industry expert? Maybe we should consider a few other not-inconsequential items, too.

    1) Yes, Delta's fleet is a little bit older than some other airlines, but they're paid for, too, which means the total cost of ownership is substantially less. I'm sure the folks in Atlanta have weighed the additional fuel burn vs. ownership costs much more than any wannabe analyst.

    2) Delta is investing heavily in that just-a-little-bit-older fleet to provide amenities that customers are willing to pay more for, such as lie-flat seats in Business Class and fleetwide wi-fi

    3) Investments in the current fleet notwithstanding, Delta is taking delivery of 100 Boeing 737-900ERs and 88 Boeing 717s over the next several years, which will replace older, less fuel-efficient aircraft

    4) How about the Trainer refinery purchase, which is supposed to reduce Delta's fuel expense by $300M/year?

    5) Delta has substantially reduced its debt and is on course to reduce its net debt to $10B by the end of 2013

    6) Despite all of the above, Delta has posted operating profits in nearly every quarter since 2010

    At the end of the day I'll make my own decision vs. listening to some uninformed analyst with an ax to grind because he had to pay to check a bag.

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