Which Is A Better Pick – Delta Stock Or United Airlines?

DAL: Delta Air Lines logo
Delta Air Lines

We believe Delta stock  (NYSE: DAL) and its peer United Airlines stock (NASDAQ: UAL) will likely offer similar returns in the next three years. Delta is trading at 0.5x revenues compared to 0.3x for United Airlines. Investors have assigned a higher multiple to Delta due to its superior revenue growth and profitability, as discussed below.

Interestingly, both DAL and UAL have had a Sharpe Ratio of 0.1 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

If we look at stock returns, United Airlines, with 30% returns in the last twelve months, has fared marginally better than Delta, up 26%, and both have outperformed the broader S&P 500 index, up 14%. There is more to the comparison, and in the sections below, we discuss the possible returns for DAL and UAL. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Delta vs. United AirlinesWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. Delta’s Revenue Growth Is Slightly Better

  • Delta’s revenue growth has been slightly better, with a 27% average annual growth rate in the last three years, compared to 26% for United Airlines.
  • The rise in revenues for both airlines over the recent years can be attributed to a rebound in air travel demand, with passenger traffic and ticket yield rising meaningfully in the recent past.
  • For perspective, Delta’s available seat miles (ASM) declined 30% between 2019 and 2021 but surged 20% in 2022. Similarly, its passenger revenue per available seat mile (PRASM) fell 25% between 2019 and 2021 but rose 49% y-o-y in 2022.
  • In comparison, United Airlines’ ASM decreased 27% between 2019 and 2021 before rising 39% y-o-y in 2022. Its PRASM declined 19% and increased 43% over the same period, respectively.
  • Looking at the last twelve months, United Airlines’ 43% sales growth has fared better than 33% for Delta.
  • Our Delta Revenue Comparison and United Airlines Revenue Comparison dashboards provide more insight into the companies’ sales.

2. Delta Is More Profitable 

  • Delta’s reported operating margin slid from 13% in 2019 to -91% in 2020 before recovering to 6% in 2022. In comparison, United Airlines’ operating margin fell from 9% in 2019 to -49% in 2020 but rose to 2% in 2022.
  • Looking at the last twelve month period, Delta’s operating margin of 7% fares better than 5% for United Airlines.
  • Our Delta Operating Income Comparison and United Airlines Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. While Delta’s 80% debt as a percentage of equity is lower than 188% for United Airlines, its 8% cash as a percentage of assets is lower than 26% for the latter, implying that Delta has a better debt position, but United Airlines has more cash cushion.

3. The Net of It All

  • We see that Delta has seen superior revenue growth, is more profitable, and has a better debt position. On the other hand, United Airlines has more cash cushion and is trading at a slightly lower valuation multiple.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both Delta and United Airlines will likely offer similar returns over the next three years.
  • If we compare the current valuation multiples to the historical averages, UAL fares slightly better. Delta’s stock trades at 0.5x sales compared to its last five-year average of 0.9x, and United Airlines stock trades at 0.3x revenues vs. the last five-year average of 0.6x.
  • Our Delta (DAL) Valuation Ratios Comparison and United Airlines (UAL) Valuation Ratios Comparison have more details.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 19% for Delta over this period vs. a 24% expected return for United Airlines stock, implying that investors can pick either of the two airlines for similar returns, based on Trefis Machine Learning analysis – Delta vs. United Airlines – which also provides more details on how we arrive at these numbers.

While DAL and UAL may offer similar returns in the next three years, it is helpful to see how Delta’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

 Returns Aug 2023
MTD [1]
YTD [1]
Total [2]
 DAL Return -10% 26% -16%
 UAL Return -10% 30% -33%
 S&P 500 Return -5% 14% 95%
 Trefis Reinforced Value Portfolio -7% 28% 555%

[1] Month-to-date and year-to-date as of 8/21/2023
[2] Cumulative total returns since the end of 2016

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