As a whole, airline stocks fell dramatically in 2020 as the COVID-19 pandemic shut down the industry. If you look at the price per share among many airline stocks, most of them look like they're still way down from where they were prior to the pandemic. But in reality, Delta Air Lines (DAL 0.94%) might be the only airline stock that still trades at a relatively low price.
In this video from Motley Fool Backstage Pass, recorded on Sept. 9, Fool contributors Jason Hall and Lou Whiteman explain the difference between a company's market capitalization and its enterprise value -- and why this makes Delta stock look like a deal today.
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Jason Hall: I'm going to share a chart here. I want to talk about this just for a little touch longer because I think one of the things that investors will do is they'll look at a chart like this and you see the share prices of these businesses, we saw that run-up basically from the COVID lows to late winter before we saw a lot of these stocks sell off. But you look at that and you go back three years to the back in the normal world and the stocks are all down by double-digits and some are down by half. Lou, give us some context here on-
Lou Whiteman: I'm curious for one thing, add Delta. Secondly, change that from price to enterprise value.
Hall: This is the conversation I wanted to have.
Whiteman: Suddenly, Spirit is almost treading water where they are. What this is showing, Fools, and I think probably most of that, but enterprise value is market cap plus debt. This is a reminder of how much debt this industry took one in the last year.
Hall: There you go.
Whiteman: Yeah.
Hall: There you go. This is what's changed. The share prices have fallen with their balance sheets because they've had to take on so much debt, have drastically changed their capital structure.
Whiteman: Now, mind you go back to enterprise value and let's say, because I will tell you the one that constantly stands out to me when I look at this is Delta. Because in my mind, Delta prior to the pandemic was bordering with Southwest for the best-run airline in the business. In some ways, over the last five years have been a better-run airline than Southwest, and it still trades as a legacy carrier in that "these bumbling idiots don't know what they are doing" talk from the '80s and '90s.
I don't know if that's a recommendation because I think it's a long road back for all of them. Delta does need international and they need business. But I don't think people fully appreciated the power of Delta's management team prior to the pandemic and I think the fact that on an enterprise-value basis, it is still beaten down and Southwest isn't, that speaks to me in terms of relative value at this moment, if you did want to buy an airline stock.
Hall: I can tell you anecdotally, for whatever it's worth, we've done some travel with our planned relocation coming up and we've traveled with Delta. I have to say my experience with the professional -- of their staff, of attitudes on the planes, just how well they treat every single customer. I was very impressed.
Whiteman: One of the things they've done well, too, is that they have decided and it took the whole industry way too long. But they more than say, an American right now, have decided the game isn't to get as many passengers as you can. The game is to do it profitably and sustainably. They kept their middle seats open for much longer than anyone else in the industry in part because they wanted to differentiate themselves at the cost of near-term revenue.
That's the world they are operating in right now. I think the world of this management team, I think a lot of that remember, you're dealing with mostly non-union employees, which is a real different thing from the rest of the industry. There is a different mindset to Delta than there is even with Southwest and some of the other companies right now, it can be fleeting. Cultures are very dangerous thing, especially in this industry.
Seeing the way they have been treated by the market relative to what the company, I think it is long term, I think Delta is a very intriguing stock in a very bad sector.
