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By Jim Tharpe
Atlanta Journal-Constitution
Thursday, February 7, 2008
Here's some advice from the money pros: If you don't like roller-coasters, stay clear of Delta Air Lines stock.
The Atlanta-based carrier's stock price has been on a stomach-churning ride since the airline emerged from bankruptcy last spring.
The newly issued stock was above $23 a share last April, but dropped to $15 by late summer. It recovered a bit, only to plummet to $11.50 by early January as fuel prices soared and the economic outlook dimmed. Since then it has popped back to more than $18 a share amid rampant speculation that a merger with Minnesota-based Northwest Airlines to create a mega-carrier is in the works, possibly as early as next week.
Delta's stock closed Thursday at $18.49, up 3 percent, on heavy volume, while Northwest closed at $18.50, up less than a percent.
"It's been a wild ride," said Emily Sanders president and CEO of Sanders Financial Management in Norcross.
Sanders said she would not recommend Delta's stock at these levels, and cautioned that speculators aiming for a quick buck on a merger announcement could be disappointed.
"The cat is already out of the bag because the word is out that they are talking," she said. "There's probably more downside potential at this point that upside."
Rick Berry, a stock and currency analyst with Atlanta Foreign Exchange Money Management LLC, said Delta's stock has already moved up 70 percent from its low in January. Most of the rise, he said, has been based on breathless media speculation, not company fundamentals.
Airlines are grappling with soaring fuel costs, limited pricing ability and the potential for an increasingly sluggish economy. Those problems have forced some carriers to consider mergers as a way to trim costs.
If a Delta-Northwest merger falls through at this point, Berry said, Delta's stock "could easily retrace the move back to $12 when you combine the fluff with a bear market."
Neither Delta nor Northwest would comment on either merger speculation or the recent increases in the companies' stock prices. Most airline stocks have moved up recently on the prospect that a Delta-Northwest combination will spark other mergers.
"Delta does not comment on the day-to-day movement of its stock," said company spokesman Kent Landers.
Minneapolis-based airline analyst Terry Trippler, who expects an announcement by Delta and Northwest sometime next week, said both companies stocks at current levels are for short-term gamblers who thrive on volatility in the market.
"Airline stocks in general are OK for traders, but not long-time investors," Trippler said "My gut is any type of merger will be stock-for-stock, so the premiums are built in."
Merger speculation in the financial press — print and online — has reached a fever pitch in recent days. The online site MarketWatch.com in a Thursday story had the two carriers "inching their way toward a merger deal." The New York Times noted that "merger talks have picked up pace," while The Wall Street Journal said they "have picked up steam." The Atlanta Journal-Constitution observed that talks "have accelerated and could be headed toward a merger deal next week."
Airline analyst Ray Neidl of Calyon Securities said there would be no immediate financial windfall for investors in a Delta-Northwest merger.
He said the combined airline would have to take advantage of economies of scale and increase system efficiencies to have an impact the bottom line.
That, he said, could take a year or more: "The value would come later."
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