PaineWebber Upgrades Delta
Okay, you can't lie to us. We know you're going to sneak out the door early tomorrow to pay homage to the summer sun gods for the first time this year. But, because we here at Wing Tips care, and because we would hate to think of you venturing forth without our weekly look at the things with wings, we offer you our usual end-of-the-week tidbits a day early!
Hark! In a sea of downgrades and disappointing revenue figures,
analyst Sam Buttrick this morning issued an upgrade for the shares of
Delta Air Lines
to a buy from attractive, and set a target price of 76 to 78 for the stock.
Delta is the only major airline we're bullish on at this point. In fact, it's been the only major airline we've been long-term bullish on in some time.
Before we go any further, let's remind readers that when we talk about the major airlines for investment purposes, we don't include
. Southwest is in a league of its own, and we're still -- even at its current expensive price -- long-term bullish on Southwest (although, please note that I sold my longstanding position last week, as explained
So when we talk about "major airlines," we're comparing Delta with the big boys:
. You know, those things with lots of wings.
Although shares of Delta have dropped back of late, we agree wholeheartedly with Buttrick, who closed his research note this morning with these comments:
Then and Now -- Just a little while back, DAL shares were the 'flavor of the month.' American had sick pilots, United had Pacific problems, Northwest was holding passengers hostage, America West (AWA) was on a 30-day clock, and so on and so forth -- but Delta was a new management story, with new technology, new systems, improving operations -- all that good stuff. Then Wall Street remembered that Delta was an airline too and it had pilots. Folks, the management's still there, and the only important number that has changed is the stock price.
Amen. And remember my column
yesterday about not looking at the sector as one big, homogeneous group? This is a prime example. American and United seem to be the two major airlines that posted the worst unit revenue performances in April. But that doesn't mean that all the airlines did poorly. Delta, as we
reported last week, didn't. Southwest didn't either.
Investment Ramifications of Proposition RJ (Regional Jet)
The much-awaited and somewhat controversial Proposition RJ study was released yesterday in Washington, D.C. The study seeks to provide rational, research-based reasons why regional jet service in the U.S. should be expanded, and there are a couple of key things here for investors to note.
The study, underwritten by a coalition of airport authorities and small- to mid-sized communities, shows that those airlines that currently have no "scope clause" restrictions to limit expansion using regional jets already have a sizable advantage over those airlines that are so constrained. (See our Traveling with Wings column from last
Saturday for more background on this.)
One of the key points the study makes is that both Delta and Continental, two major airlines that are free to expand existing routes using regional jets and/or regional airline partners, are sitting in the cat bird seat right now. Which airlines are most likely to lose ground if changes aren't made in existing pilot/management contracts? United and US Airways. American Airlines could also potentially lose ground, according to the study, though the total number of potential regional jet routes identified for American was substantially less than the number of routes found for United and US Airways.
And in response to a number of emails I received this past week from American Airlines pilots reminding me that there are no restrictions on mainline American pilots flying regional jets, my comment is this: They
fly them now, nor does the company have any on order for them to fly. Yes, the mainline pilots
fly them, but I don't think the airline is going to pay them mainline rates to do so.
So, for the sake of argument, at this point I think it's fair to consider American Airlines as regional-jet-constrained as well. After all,
, at this point in time, is the only airline at AMR that is currently flying them or has them on order.
Reader Mail Bag Turned Upside Down
We've had a great deal of mail about the
stock situation over the past few days. Yesterday, after our column ran, we received a great piece of fan mail. It looks like a technical trader will be a new Wing Tips reader as a result. To quote:
I'm a technical analysis guy -- don't really read your column often -- glad I did today. ACAI is a chart made in heaven -- classic market overreaction. And it has options, too. I think I can get 100% on this puppy. If I lose or win, I found exactly the type of trade I look for. I'll never miss your column again. There's only one thing left to say: Thank you so much!
Well, you are most welcome. We agree, this one was an overreaction to drool over.
Another long-time Wing Tips reader sent us a rather novel idea. She wants us to start writing about other sectors:
We want more Holly! How about having Ms.Hegeman analyze another sector since she does such a good job on airlines? OK, we know the airlines are probably going dormant for the summer so is it possible to do another sector? Yes, I've got some short shorts on in this sector now (it felt so cruel shorting a name like LUV), hope it goes well.
In fact, we're discussing this with the editors now. We think, for the summer, we'll just start analyzing Internet publication stocks. (Little inside joke there.)
Let me hear it!
As most of you know, when I write our weekend Traveling with Wings columns, I look at the rumblings in the industry from a passenger's point of view. Here in Wing Tips, we do different things. But I'd like to hear from you about what you'd like to see more of. More analysis of individual stocks? More industry overviews? More tidbits from across the sector that could have a direct impact on stocks?
If you have any thoughts,
drop me a line. We like to make sure we're giving you what you like to read.
Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at
www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at
As originally published this story contained an error. Please see
Corrections and Clarifications.