Delta Air Lines Leads The Pack, But Will The Sector Ever Stop Being 'Cheap?'

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Delta Air Lines, Inc. DAL leads its peers in myriad ways in a highly commodified sector long considered “cheap,” which makes buying it a good bet, Barclays analyst Brandon R. Oglenski said in initiating coverage of the airline with an Overweight rating.

“Leading is no easy task; as such we give Delta tremendous credit. A culture driven by respect for customers and employees blended with shrewd capital management has transformed Delta into one of the largest, safest and most profitable airlines in the world.” he wrote in a note.

Not A Bad Move To Pack A Portfolio With Delta

On the negative side, he said the company’s management recently decided to reduce long-term margin targets and is carrying a big pension liability.

“However, given Delta’s leadership position in a sector we view as affording investors deep value, we are hard pressed not to have a large representation of DAL shares in the portfolio,” he wrote. “Okay, we get it, airlines are ‘cheap’; when will that change (if ever) and what makes Delta any different?”

Related Link: Delta Airlines Declares Quarterly Dividend

Paging Mr. Buffett

“However, three years and counting into the US industry’s ‘new’ higher level of profitability and we think more investors like Mr. (Warren) Buffett will start to take notice.”

He set a price target of $70 and said rated the whole sector as Positive. Delta was largely unchanged at $49.50.

He said he was encouraged by management’s ability to drive value from initiatives that challenge the traditional business model, many of which have been emulated by its closest competitors.

And while other airlines, such as United Continental Holdings Inc UAL, should be able to match Delta’s profitability, Delta’s cheap valuation, branded fares, loyalty programs, global alliances and capital discipline “make for a bright future at Delta.”

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Posted In: Analyst ColorLong IdeasPrice TargetInitiationTravelTop StoriesAnalyst RatingsTrading IdeasGeneraldeltaUnited AirlinesWarren Buffett
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