Warren Buffett's Berkshire Buys More Delta Airlines Shares
- By Holly LaFon
Warren Buffett (Trades, Portfolio) on Friday disclosed that he added to his stake in Delta Airlines (DAL) during the latter three days of the week.
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The intrinsic value of DAL
In an insider filing because it owns more than 10% of Delta, Buffett's company, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), reported buying 5,368,956 additional shares of the airline. The purchases grew Berkshire's position 8.19% to 70,903,956 shares of Delta.
Berkshire made the purchases on March 6, 7 and 8 at prices ranging from $49.45 to $49.88 per share. Trading in the shares has been choppy in past months, with the price down 11.7% over the past year through Friday and 1% year to date. Delta shares then jumped 3.09% Monday, the first day of trading since Buffett's report.
Berkshire started a Delta position in the third quarter of 2016 when the price averaged $38 per share and bought the majority of the shares the following quarter when the price averaged $46. GuruFocus estimates, based on quarterly average buy and sale prices, that Berkshire's gain on the investment stood around 10% at close Monday.
The investment came as a surprise to many market observers because Buffett had avoided airline stocks for decades following a losing investment in USAir in 1989. In February 2017 he updated investors on his thoughts on the industry, telling CNBC, "It's true that the airlines had a bad 20th century ... The hope is they will keep orders in reasonable relationship to potential demand."
Berkshire also established positions in American Airlines Group Inc. (AAL), Southwest Airlines Co. (LUV) and United Continental Holdings Inc. (UAL) in 2016. Each of the airlines has gained since the start of the third quarter of 2016, with Delta and United outperforming the market. Compared to the 38% return in the S&P 500 index over the period, Delta rose 40% and United Airlines soared 101%. American Airlines also gained 13%, while Southwest returned 32%.
Delta is the largest airline position in Berkshire's $183 billion common stock portfolio and 11th biggest position overall at 1.79% of its value.
Delta also has the lowest price-earnings ratio of the three, at 8.73 versus their average of 10.42, and the highest dividend yield at 2.73% versus their average of 1.74%.
On March 5, the day before Buffett's string of purchases, Delta issued an optimistic presentation at the JPMorgan Aviation, Transportation and Industrials Conference, reaffirming guidance it set at the start of the first quarter although fuel prices had risen 5%. For revenue, Delta expects to hit the top end of its guidance of 4-6% growth. The company also touted its 99.8% completion rate for the past 12 months, the highest in the industry, with 251 cancellation-free days, beating all of its competitors combined.
Emphasizing its competitive advantage, Delta CEO and Director Edward Bastian said, "The operational machine is running well. It's the foundation by which we set our business. It's what keeps our customers coming back to Delta, and it's what our employees love to do in terms of serving customers."
On a price decline during the first quarter, Delta used cash to accelerate share repurchases, buying 26 million shares at $1.3 billion.
See Warren Buffett (Trades, Portfolio)'s portfolio here.
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This article first appeared on GuruFocus.
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The intrinsic value of DAL
