Buy Delta because of its 'respect' for customers and employees: Barclays

Key Points
  • Barclays analyst Brandon Oglenski says Delta's respect for customers and staff helped transform the airline into "one of the largest, safest, and most profitable" in the industry.
  • The analyst has a 12-month price target of $70, which is 41 percent higher than Wednesday's closing price.
  • This may be a surprise to critics of the airline industry, as rival United recently faced negative publicity after the forced removal of a passenger from a flight.
Delta Airlines passenger planes
Robert Alexander | Getty Images

Barclays on Thursday initiated coverage of Delta Air Lines at overweight, calling it a leader in the sector and highlighting its strong relationships with staff and customers.

"A culture driven for respect for customers and employees blended with shrewd capital management has transformed Delta into one of the largest, safest and most profitable airlines in the world," wrote Barclays analyst Brandon Oglenski.

"Given Delta's leadership position in a sector we view as affording investors deep value, we are hard pressed not to have a large representation of Delta shares in the portfolio."

This may come as a surprise to critics of the airline industry. Rival United Airlines recently faced a barrage of negative publicity after a viral video showed the forced removal of a passenger from an overbooked flight.

Delta also recently dealt with customer complaints after airline employees removed a couple with two toddlers so their seats could be given to other waiting passengers. The disagreement was about whether the family was allowed to use a seat originally purchased for their teenage son for one of their toddlers.

United and Delta apologized for the incidents.

Oglenski pointed to a number of trends that could boost Delta's stock price in the next year.

"With continued outperformance on margins, returns and free cash generation relative to peers, we think historical airline valuation is becoming less relevant for Delta specifically," he said. "In our view, a re-rating of Delta's stock is warranted."

The analyst's overweight rating included a 12-month price target of $70, which is 41 percent higher than Wednesday's closing price.

Though Delta's stock is up only 1 percent this year, Barclays research is looking for big things in both domestic and foreign markets, which now represent about 30 percent of revenue.

"Branded fares, loyalty programs, global alliances, and capital discipline make for a bright future at Delta," concluded Oglenski. "Given significant growth in global air travel, especially relative to US expansion in recent years, Delta's international strategy could represent meaningful future upside for the company."