Delta Air Lines (DAL)
Valuation: P/E and Forward P/E ratios suggest the stock is undervalued relative to its earnings.
Earnings and Revenue: Strong earnings expected next year, and overall better profitability.
Performance: Stronger recent performance across different time frames, including YTD.
Ownership: Higher institutional ownership, which can be a sign of institutional confidence.
Dividends: Paying dividends, although the yield is low.
Recommendation: Analysts have a "strong buy" or "buy" recommendation, with a target price considerably above the current price.
American Airlines (AAL)
Valuation: Extremely low P/E and Forward P/E, which could indicate either significant undervaluation or skepticism.
Earnings and Revenue: Slightly less optimistic outlook for future earnings growth.
Performance: Generally weaker performance, particularly in the shorter term.
Ownership: Lower institutional ownership, which might indicate less institutional confidence.
Dividends: Not paying dividends.
Recommendation: Analysts have a "hold" recommendation, with a moderate target price above the current level.
Potential Strategy
Go Long on DAL: Given its stronger performance metrics, better institutional ownership, and more favorable analyst recommendations, DAL seems to be the stronger candidate for a long position.
Go Short on AAL: With its lower performance metrics, less favorable valuation ratios, and lower institutional ownership, AAL could be the candidate for a short position.
How Oil Data Could Impact Airlines:
Increase in Oil Prices: The Brent crude oil spot price is forecasted to increase from $79 to $83 in 2023 and up to $86 in 2024. Higher fuel prices generally mean increased operational costs for airlines, affecting profitability.
U.S. Crude Oil Production: It's forecasted to increase, which could potentially help offset some of the price increases, although the impact might be marginal given the percentage change.
U.S. Gasoline Inventories: A decrease in inventories generally means higher prices. Airlines use jet fuel, which is closely related to gasoline, so this could further increase operational costs.
GDP Growth: A slower GDP growth rate could mean less consumer and business spending on travel, affecting the airline sector's growth.
Implications for DAL and AAL:
Profit Margins: Both airlines will face challenges with rising fuel costs. However, DAL's stronger financials could make it more resilient in absorbing these costs compared to AAL.
Operational Efficiency: Rising costs might make operational efficiency even more critical. DAL's potential for operational efficiencies could serve it well here.
Debt Levels: Rising oil prices and potentially higher interest rates could make debt servicing more challenging. DAL has a Debt/Eq of 2.49, while AAL has no long-term debt, potentially making AAL less susceptible to this particular challenge.
Consumer Behavior: If higher operational costs are passed onto consumers, the willingness to spend on travel might be affected, given the already increasing interest rates and softening of some travel indicators as per the previous analysis. This could hit both airlines but might hurt AAL more if travelers opt for more financially stable airlines during uncertain times.
Final Strategy:
Long on 1*DAL: Despite rising fuel costs, DAL’s better financials and potential for operational efficiencies could make it a more resilient investment.
Short on 3*AAL: AAL’s weaker financials, higher volatility, and greater susceptibility to sector-wide challenges make it a candidate for a short position.
Valuation: P/E and Forward P/E ratios suggest the stock is undervalued relative to its earnings.
Earnings and Revenue: Strong earnings expected next year, and overall better profitability.
Performance: Stronger recent performance across different time frames, including YTD.
Ownership: Higher institutional ownership, which can be a sign of institutional confidence.
Dividends: Paying dividends, although the yield is low.
Recommendation: Analysts have a "strong buy" or "buy" recommendation, with a target price considerably above the current price.
American Airlines (AAL)
Valuation: Extremely low P/E and Forward P/E, which could indicate either significant undervaluation or skepticism.
Earnings and Revenue: Slightly less optimistic outlook for future earnings growth.
Performance: Generally weaker performance, particularly in the shorter term.
Ownership: Lower institutional ownership, which might indicate less institutional confidence.
Dividends: Not paying dividends.
Recommendation: Analysts have a "hold" recommendation, with a moderate target price above the current level.
Potential Strategy
Go Long on DAL: Given its stronger performance metrics, better institutional ownership, and more favorable analyst recommendations, DAL seems to be the stronger candidate for a long position.
Go Short on AAL: With its lower performance metrics, less favorable valuation ratios, and lower institutional ownership, AAL could be the candidate for a short position.
How Oil Data Could Impact Airlines:
Increase in Oil Prices: The Brent crude oil spot price is forecasted to increase from $79 to $83 in 2023 and up to $86 in 2024. Higher fuel prices generally mean increased operational costs for airlines, affecting profitability.
U.S. Crude Oil Production: It's forecasted to increase, which could potentially help offset some of the price increases, although the impact might be marginal given the percentage change.
U.S. Gasoline Inventories: A decrease in inventories generally means higher prices. Airlines use jet fuel, which is closely related to gasoline, so this could further increase operational costs.
GDP Growth: A slower GDP growth rate could mean less consumer and business spending on travel, affecting the airline sector's growth.
Implications for DAL and AAL:
Profit Margins: Both airlines will face challenges with rising fuel costs. However, DAL's stronger financials could make it more resilient in absorbing these costs compared to AAL.
Operational Efficiency: Rising costs might make operational efficiency even more critical. DAL's potential for operational efficiencies could serve it well here.
Debt Levels: Rising oil prices and potentially higher interest rates could make debt servicing more challenging. DAL has a Debt/Eq of 2.49, while AAL has no long-term debt, potentially making AAL less susceptible to this particular challenge.
Consumer Behavior: If higher operational costs are passed onto consumers, the willingness to spend on travel might be affected, given the already increasing interest rates and softening of some travel indicators as per the previous analysis. This could hit both airlines but might hurt AAL more if travelers opt for more financially stable airlines during uncertain times.
Final Strategy:
Long on 1*DAL: Despite rising fuel costs, DAL’s better financials and potential for operational efficiencies could make it a more resilient investment.
Short on 3*AAL: AAL’s weaker financials, higher volatility, and greater susceptibility to sector-wide challenges make it a candidate for a short position.