Analyst Asks What Delta Investors Are Thinking: Why Is It Trading So Low?

CRT cut its price target on Delta Air Lines, Inc.

Wednesday from $63 to $59 and maintained a Buy rating on the stock. Analysts Michael Derchin and Adam Hackel noted that the stock traded at 4.8 times its estimated 2016 TEV/EBITDAR which was "at the low end of the historic range and a deep discount to the market despite strong fundamentals." The analysts asked "why" the stock was at this low level. Derchin thought that investors were "unwilling to believe that the changes that have taken place at DAL and its peers are sustainable." The analysts, however, strongly disagreed with "the common wisdom" and felt that "disciplined capacity growth, ancillary revenue improvement, cost productivity, consolidation, free cash flow generation and balanced capital deployment" were sustainable. The $59 price target assumed the stock would eventually traded at 6.3x estimated 2015 TEV/EBITDAR of $8.9 billion which was "the high end of the 4.5x to 6.5x historic range," according to the analysts. The company's 2015 EPS estimate was lowered from $4.90 to $4.55 "due to choppy jet fuel prices, by quarter, and FX issues." Lastly, Derchin expected fuel costs to "be in line with industry averages beginning July 1 due to fuel hedge restructuring." Delta Air Lines, Inc. recently traded at $44.98, down 1.75 percent.