Please ensure Javascript is enabled for purposes of website accessibility

Why Delta Air Lines, Inc. Shares Fell 14.4% in April

By Adam Levine-Weinberg - May 9, 2016 at 1:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Delta stock got caught up in a broader airline sector rout.

What: Nearly every major airline stock fell last month, as a series of airlines projected that unit revenue would continue to decline at a rapid rate during Q2. Delta Air Lines (DAL 1.90%) stock got caught up in the airline sector rout, falling 14.4% during April, according to data provided by S&P Global Market Intelligence.

DAL Chart

Delta Air Lines April Stock Performance, data by YCharts.

So what: Passenger revenue per available seat mile (PRASM) fell 4.6% year over year at Delta last quarter. That was slightly worse than the company's guidance for a 2.5%-4.5% decline.

However, Delta's revenue performance compared favorably to that of its two closest rivals: American Airlines (AAL 3.55%) and United Continental (UAL 2.88%). During Q1, American and United both reported PRASM declines in excess of 7%.

American Airlines and United Continental aren't expecting any meaningful improvement in their PRASM performances this quarter. American expects PRASM to be down 6%-8% year over year in Q2, while United projects that PRASM will fall 6.5%-8.5% year over year.

By contrast, Delta Air Lines' guidance for a 2.5%-4.5% drop in Q2 PRASM implies that its revenue performance will improve somewhat sequentially. Delta estimates that PRASM fell about 4% in April. This suggests that it is on track to hit its guidance, because unit revenue comparisons will get easier over the next few months.

Now what: Delta's dreadful stock performance last month seems like a case of mistaken identity. Investors dumped shares of American Airlines and United Continental due to their steep Q1 PRASM declines and equally weak PRASM guidance. Many investors seem to have treated Delta as if it were no different than these two competitors.

However, Delta's PRASM performance wasn't nearly as bad as its peers'. Furthermore, it is on track to move PRASM back toward the flat line over the next few quarters. As a result, analysts expect Delta's earnings per share to soar 46% year over year in Q2 and 42% for the full year.

Delta is expected to produce further EPS growth in 2017, albeit on a more modest scale. Despite this rosy profitability outlook, Delta shares trade for just 6.4 times the company's projected 2016 EPS. That's an incredibly low asking price for this high-quality airline stock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$29.52 (1.90%) $0.55
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$36.44 (2.88%) $1.02
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$13.13 (3.55%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.