DELTA SHARES FLYING TOO LOW FOR THE BULLS' COMFORT – BUT WILL A DROP IN CRUDE HELP?

Delta Airlines, Inc.

shares have been mired in a miserable bear trend since peaking out in January at $51.06. The resurgence in crude oil prices has clearly had something to do with the downward price action in the airline sector in general and in Delta in particular. If crude oil were to top out (or if it has already topped out), could Delta shares be a bargain down here? Let's take a look at Delta from a fundamental and technical standpoint to get a better idea of what may be in store for shareholders… What the bulls see in Delta… • A 0.90% annual dividend yield – it's small, but it's something • Some cheap valuation metrics: o An enterprise value of $39.65 billion that eclipses the market capitalization of $33.22 billion o A price-to-sales ratio of only 0.82 o The PE of just under 8 versus estimated EPS growth of over 10% for next year • Positive levered free cash flow of $3.74 billion annually • Impressive management effectiveness ratios: o Return-on-assets of 7.09% o Return-on-equity of 11.52% What the bears see in Delta… • Some expensive valuation metrics: o A price-to-book ratio of 3.72 o The PE of just under 8 versus estimated revenue growth of just under 4% for next year • Pretty thin 2.92% net profit margins • Some concerning balance sheet metrics: o Total cash of $3.57 billion versus total debt of $9.57 billion o Total debt-to-equity of 105.82% o A current ratio of only 0.71 The technical take on DAL shares…. Technicians note that Delta Airline shares bounced nicely off of support at around $38.37 and rallied up to horizontal line resistance at $41.79. They note, however, that a re-test of the $38 - $39 range may well occur before much more upside takes place. They go on to point out that DAL shares are at the lower end of a downtrend channel – a downtrend that would, in theory, remain intact and dominant until the upper trend line is broken. That would not happen unless the stock managed to close above around $45.50 at this point. Overall… A significant renewed bout of downside in crude oil might give Delta shares a boost – especially if they successfully re-test and hold support at $38.37. The company's fundamentals are mixed, but aren't abnormal in the airline sector. Given the neutral fundamental picture and the possibility of a drop in crude oil prices, the bulls may be eager to buy at or near the $38.37 level with the hopes that a bounce up to the mid-$40s occurs.