Wolfe Research Turns to Airline Industry, Upgrades DAL

The equity sports attractively priced premiums at the moment

Digital Content Manager
Jun 18, 2021 at 10:38 AM
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After turning bullish on the cruise sector earlier this week, Wolfe Research is now turning to the airline industry. The brokerage firm upgraded Delta Air Lines, Inc. (NYSE:DAL) to "outperform" from "underperform," after doling out similar bull notes to Alaskan Airlines (ALK) and United Airlines (UAL). The analyst said trading on DAL is "bizarre," adding that it sees upside for Delta, despite higher industry-wide costs. Plus, while the firm is skeptical business travel will go back to pre-pandemic levels, it expects to see pent-up demand in late summer. At last check, the security is up 0.4% at $44.74. 

On the charts, Delta Air Lines stock has been struggling with overhead pressure at the $48 level, which rejected an early June run-up. Shares still have a ways to go before reaching the $60 level, which is where the equity stood before the pandemic took its toll. Year-over-year, however, DAL has added 45.2%.

Analysts were optimistic towards the security coming into today, with nine of the 15 in coverage sporting a "strong buy" rating, while six called it a tepid "hold." Plus, the 12-month consensus target price of $55.83 is a significant 25.3% premium to the stock's current perch.

That upbeat sentiment is echoed in the options pits, where calls are king. This is per Delta Air Line stock's 50-day call/put volume ratio of 4.46 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the top percentile of its annual range. This indicates long calls are being picked up at a faster-than-usual rate.

Those wanting to get in on the stock's next move with options are in luck, as DAL premiums can be had for an absolute bargain at the moment. The security's Schaeffer's Volatility Index (SVI) of 36% sits in the low 6th percentile of readings from the past 12 months, meaning options players are pricing in low volatility expectations.

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