Yahoo Finance How Financially Strong Is Delta Air Lines, Inc. (NYSE:DAL)?
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Delta Air Lines, Inc. (NYSE:DAL) a safer option. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the health of the financials determines whether the company continues to succeed. I will provide an overview of Delta Air Lines’s financial liquidity and leverage to give you an idea of Delta Air Lines’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into DAL here.
See our latest analysis for Delta Air Lines
How does DAL’s operating cash flow stack up against its debt?
DAL has built up its total debt levels in the last twelve months, from US$8.8b to US$10b – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$1.9b for investing into the business. Moreover, DAL has produced US$7.7b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 74%, signalling that DAL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DAL’s case, it is able to generate 0.74x cash from its debt capital.
Can DAL pay its short-term liabilities?
Looking at DAL’s US$18b in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$6.7b, leading to a current ratio of 0.37x.
Is DAL’s debt level acceptable?
With a debt-to-equity ratio of 76%, DAL can be considered as an above-average leveraged company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. The sustainability of DAL’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For DAL, the ratio of 14.48x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as DAL is a safe investment.
Next Steps:
Although DAL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. Keep in mind I haven’t considered other factors such as how DAL has been performing in the past. You should continue to research Delta Air Lines to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DAL’s future growth? Take a look at our free research report of analyst consensus for DAL’s outlook.
Valuation: What is DAL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DAL is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
