Delta: Timing The Bottom

To sum it up in as few words as possible:  2021 was huge for retail stocks.

After being cooped up for most of 2020, paired with an increase in savings, consumers went crazy and bought goods at a pace never seen before.

That's why stocks like Nike, Lululemon, Dick's Sporting Goods, and others did so well.

But as we mentioned during our outlook for this year, we strongly believed that retail spending would decrease. Well, fast forward to today and we've seen a strong reversion back to historical norms.

And, as we also mentioned during this outlook, with this change we projected that we'd start to see the spending shift back towards services (like airline travel) rather than spending on physical goods (e.g. clothing, sneakers, etc.).

What we underestimated however was two things:

1. How strong the increased demand would be

2. How bad inflation would become

But here at Moby, we use these short-term trends to identify longer ones. And outside of the noise you see in the stock market, we're starting to see fuel costs peak while US-based travel & corporate travel pick back up significantly.

So how does this bode well for Delta moving forward? Let's get into it 👇 

Delta In Review:

As we've told you several times now, dating back to late last year, we've continuously been excited by the continued pickup in Delta's corporate travel & PRASM (Passenger Revenue per Available Seat Mile).

That's why at first, the stock responded by hitting our original price target. However, once it hit our price target, the stock took a dip in April of last year and has been sliding down ever since.

The reason this happened (outside of the pandemic) was largely due to inflation. Inflation absolutely crushed their margins as the price of their fuel went up like crazy.

But even with the massive increases in fuel costs, Delta was able to pass on a majority of these costs to the customer while also maintaining demand growth. 

But as we mentioned before, the spike in fuel costs went significantly higher than most expected.

However, after such a surge, it finally looks like things are starting to calm down setting them up nicely for the rest of the year.