A good time to buy? Mariott Internatinal, Inc

Business Summary

Based on calendar 2000 data, Delta is the largest U.S. airline in terms of aircraft departures and passengers enplaned, and third largest as measured by operating revenues and revenue passenger miles flown. Delta is the leading U.S. airline in the transatlantic, offering the most daily flight departures, serving the largest number of nonstop markets and carrying more passengers than any other U.S. airline.

After the tragedies of September 11, the airline industry was impacted greatly. Not only was passenger traffic and yields lower than before the attacks, but also the new security directives required by the FAA have increased costs significantly. These negative impacts resulted in Delta’s decision to reduce their network capacity by 16% effective November 1, 2001. This caused the reduction of 13,000 employee positions. The employee reductions will come in the form of voluntary, involuntary, and early retirement programs. Delta expects to incur a severance charge of $68 million dollars, and a charge of $425-450 million related to the early retirement program. The reduced network capacity also forced the early retirement of 50 aircraft. It was estimated that the September 11 terrorist attacks negatively impacted Delta’s revenues by approximately $400 million dollars.

Delta believes that the impact of the September 11 terrorist attacks will cause substantial losses in the December 2001 and March 2002 quarters as well. These events are and will continue to affect Delta’s revenues. While traffic has been gradually increasing, revenue is not keeping pace.

“Delta’s future financial condition and results of operations will depend on several factors, including the following:

1. 
   The magnitude and duration of the adverse impact of the terrorist attacks on the demand for air travel;
   
2. 
   The increases costs and reduced operations by airlines associated with new security directives;
   
3. 
   The availability and cost of war risk and other insurance for Delta and for other critical participants in the air travel industry;
   
4. 
   The ability for Delta to obtain additional financing to support its operations;
   
5. 
   The extend to which Delta receives financial assistance under the Stabilization act; and
   
6. 
   The number of employees that may be called to serve the country in the armed forces.”¹⁸
   

Question 1. Is the price of the stock in the buy zone of greater than $10 and less than $60?

The chart below shows the stock price of Delta Air Lines, Inc. for the last five years. Also compare the price of the Marriott stock with the Dow Jones Industrial Average (DJIA) and the S&P 500 Average.

Figure 14: Delta Air Lines, Inc. stock prices since March 1997.¹⁹

Delta stock prices have consistently sold around $50. It is at an obvious low since the crash of the airline industry. It is only expected to go back up from here.
Response to question 1 is YES.

Question 2. Does the company keep their debt “reasonable”?

Delta Airlines, Inc. has a long-term debt/equity ratio of 1.54. Of course borrowing some money to help the company grow is expected and even needed. The only other thing is to make sure that the company hasn’t taken on too much debt. A good long-term debt/equity ratio should be no higher than .5 or 50%. The industry average for long-term debt/equity ratio is 14.14. Delta’s long-term debt/equity ratio is 89.06% lower than the industry average. This indicates that Delta may not be as financially constrained as other companies in the industry.

Response to question 2 is NEUTRAL.

Question 3. Does the company pay a dividend?

The company has paid a cash dividend, but that dividend has decreased in the past and then leveled off at a very low level. The chart shown below indicates dividend payout per share.

Figure 15: Delta Air Lines, Inc. historical dividends per share.²⁰

Delta Air Lines, Inc. has a history of paying a dividend. The dividends have not consistently increased throughout the years. Since the recent impact on the airline industry, the dividends probably will not increase.
Response to question 3 is NO.

Question 4. Are the historical and projected earnings positive?

Figure 16: History of Earnings per Share, Delta Air Lines, Inc.²¹

As the chart indicates Delta Airlines, Inc. has seen an increase in earnings per share seven out of the last twelve years. Obviously, the earnings took a huge hit this last year due to the terrorist attacks. Figure 17 shows Marriott projects earnings of 15.17% over the next five years. The earnings should rebound, but since the airline industry took such a drastic hit it is hard to really tell how they will rebound.

Figure 17: Projected earnings per share, Delta Air Lines, Inc.²²

Response to question 4 is NEUTRAL.

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