Airlines experienced a resurgence in recent years as investors flocked to these once hated stocks. After the September 11th, 2001 attacks the Dow Jones Airline Index (XAL) dropped from $180 to $120. It barely peaked above $60 before tanking to $15 with the rest of the market in 2009. Since then the index increased 8x through 2017.
Delta Airlines (NYSE: DAL) exited bankruptcy in 2007. Shares dropped from an open at $19.10 per share down below $4 a share in 2009. Yet, the stock took off to over $60 a share through 2017. Their current share prices reflect modest growth but a low P/E and good value.
American Airlines (Nasdaq: AAL) saw a high of $62 a share in 2007 to crash down below $2 a share in 2009. Yet, in 2018 the stock hit a high of $58 a share, 29x it’s low. With a rock-bottom P/E of 6.06x and a great PEG ratio, why wouldn’t you want to own AAL?
Looking at Delta Airlines vs. American Airlines across a handful of metrics, it becomes apparent that American Airlines is a value trap.
Valuation: American Airlines
American Airlines and Delta Airlines both present a good value. Neither trades above the single digits in terms of price to earnings. Both trade in-line on a forward P/E basis compared to their current P/E. Across all the valuation metrics DAL trades at a higher multiple than AAL.
Delta’s higher growth rate gives it higher multiples in every category. However, comparing the price to earnings growth, American Airlines still appears to be the cheaper alternative. With AAL prices depressed on valuation, any turn in growth provides the stock price a quick boost.
Source: Schwab
Growth: Delta Airlines
Delta Airlines presented much better earnings and growth in recent years. Compared to American Airlines, Delta put up 8.85% growth vs. American’s 5.05% growth. The 5-year growth would appear to paint a different picture. However, AAL merged with US Airways to effectively double sales. Their growth remained subpar when considering this acquisition. DAL not only keeps acquiring more business travelers but manages to do so with a better margin. Their growth in earnings remains substantial and is expected to continue. American Airlines is expected to continue to suffer from higher fuel prices.
