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Here's Why Delta Is The Best Of The Big 3 Airlines

Here's Why Delta Is The Best Of The Big 3 Airlines
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While Delta Air Lines, Inc. (NYSE: DAL) seems to be “the highest quality carrier among the Big 3,” there are near-term uncertainties, Imperial Capital’s Michael Derchin said in a report. He initiated coverage of Delta with an In-Line rating and $41 price target.

Best Of US Big 3

Delta was the first network airline to recognize the inherent in the cyclical airline industry, and also implement a plan to “de-risk its business, identify financial goals, and reward stakeholders,” Derchin mentioned. He named the Big 3 as Delta, American Airlines Group Inc (NASDAQ: AAL) and United Continental Holdings Inc (NYSE: UAL).

Derchin believes Delta is the “highest quality stock among the U.S. Big 3 carriers,” since the company is the only one to have investment grade corporate credit rating as well as industry-leading margins, FCF generation, and an established capital deployment plan.

Management began to de-risk the business and generate sustainable returns after the recession in 2009, which coincided with high and volatile jet fuel prices and credit crisis. “One of the most significant results of the restructuring was a significant reduction in seasonality with margins during off-peak quarters now more typical of margins generated during the peaks in previous cycles,” the analyst wrote.

Near Term Uncertainties

Derchin noted some unexpected macro events that have led to near-term concerns, including:

  • Brexit and its potential impact on UK business travel
  • Deteriorating economic, social, and terrorism problems in Europe

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Latest Ratings for DAL

Mar 2018Morgan StanleyMaintainsOverweightOverweight
Feb 2018Morgan StanleyMaintainsOverweightOverweight
Nov 2017Morgan StanleyMaintainsOverweight

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