Category Archives: $DAL

The American airlines valuation dilemma …4.4x 2015 EPS..

If someone offered you a business , which in 4.4 years would pay for itself based on current earnings consensus projections – but over that 4 years there is a risk earnings could be slashed by 40% due to an increased supply forcing┬áprices lower as well as higher raw material prices increasing costs – would you buy it?

This is the dilemma facing investors of American Airlines stock.
On the surface of it, at 4.4x 2015 earnings $AAL looks very cheap….there must be a catch when something so cheap … the catch here is that investors are really concerned that Airline Industry will not control supply and their profits will be slashed…

This is the reason British Airways used to try and kill off competition in the 80’s – not always in a legal way – as the only way to be profitable was to keep it is a Monopoly. The loser being the consumer forced to pay higher prices.

So the Industry needs to keep a happy medium – we don’t want Airlines going bankrupt again – yet consumers need prices to stay low in order to be encouraged to travel.

The Airline Industry really need to work together to ensure there is this balance. Lower oil prices should be benefiting the consumer and the industry.

Airline Fair Values:

$AAL = 70
$SAVE = 85
$DAL = 50

The above fair values imply analysts have not yet cut their estimates in line with the market..

Travel stocks crushed as EBOLA spreads – is this a good time to buy?

What does the World Health Organisation actually do and why does a hospital in Dallas have no clue on how to deal with an EBOLA Case.The WHO and the CDC have shown huge incompetence in dealing with EBOLA – and how does Africa let the disease spread to 3 countries?

Now OBAMA appoints a ‘Czar’ (Ron Klain) to sort out the mess and Cameron wants Europe to spend a Billion Euros!! Hopefully these actions will restore the public’s confidence and people will travel and book holidays.

Unlike SARS EBOLA can only be caught by physical contact and the 21 day incubation period has passed since Thomas Duncan left Liberia on Sep 19th – but no new cases – reported at least.

This is a nervous time to invest in travel stocks but the sell off could be an opportunity to buy US AirLines or Thomas Cook – but the crisis may not yet be over so buy half your position now and the the other half when the crisis begin fade OR Sell if it becomes a bigger problem – the virus looks nasty!

US Airlines:
AAL FV = 52 vs 33.4
DAL FV = 40 vs 34
UAL FV = 60 vs 44

Thomas Cook (TCG)
FV = 180 vs 109

2CentView has core positions in $AAL and $TCG.

$DAL (Delta Airlines) Price and FV have converged, $NASDAQ:AAL (American)…

Take some profits in Delta and American Airlines (approaching take profit target of $45) if you got into these stocks in the low 20’s last year.

Keep a core position in American Airlines, as the stock has more upside – FV=$52 and Dan Loeb, recently announced a big stake in Third Points last filing…

The US Economy is getting stronger with unemployment now at 6.3% – it is amazing the 10Year Bond is only yielding 2.6% – was expecting this to be above 3%, but the VIX – also trading at lows, does not indicate bearishness on stocks – so are we in a low interest rate high growth environment – some kind of upside down stagflation? or are private investors still stuck in bond funds, missing the stock rally?
Not sure, but I would  rather be long stocks than bonds right now!

@LookatBowen: Lunch is you …. want a bottle of Dom Perignon!