David Tepper Sells Airline Stocks Except Delta

Tepper just increased his positions in the first quarter

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Aug 17, 2017
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Head of successful hedge fund Appaloosa Management, David Tepper (Trades, Portfolio) shied away from airlines in the second quarter after upping his bets in the first three months of the year, according to his portfolio filing released this week.

Tepper sold all of his position in United Continental Holdings Inc. (UAL, Financial) in the second quarter, a position worth 0.42% of his long portfolio the previous quarter. He also had increased the position in 127.9% in the first quarter. Though United Continental stock is up 42% for the past year, it declined 8.2% year to date, landing on $66.92 per share at close Wednesday.

Tepper also reduced his position in Southwest Airlines (LUV, Financial) by 79.8% during the quarter, selling 2.47 million shares. Again, he had recently increased that stock, by 159.4%, in the first quarter of the year. The company’s stock price has gained 45.5% over the past year and 6.6% year to date. Southwest Airlines traded for $53.15 per share at close Thursday.

By contrast, Tepper increased his holding of Delta Air Lines Inc. (DAL, Financial) by 30.3%, growing it to 832,438 shares or 0.66% of the portfolio.

Delta Air Lines has the larger market cap of the three, at $34.98 billion, and the second-lowest price-earnings ratio, at 9.37, compared to 8.93 for United Continental and 16.25 for Southwest Airlines. GuruFocus also ranks in the middle for financial strength, at five out of 10, and for profitability, at seven out of 10.

The company falls in the middle for net margins, at 7.21%, compared to 5.56% for United Continental and 9.63 for Southwest. Its return on assets is 7.21%, versus 5.56% for United and 8.62% for Southwest.

Delta does pay the highest dividend yield of the group, at 1.73%, above 0.73% for Southwest and zero for United.

For the second quarter, Delta’s revenue amounted to $10.79 billion, a 3.3% year-over-year change. Unit revenue also increased 2.7%, the first increase in two and a half years due to higher demand and the company giving “commercial initiatives to provide customers more choice, an innovative experience and a broader global network,” according to Delta President Glen Hauenstein. For the third quarter, Delta expects passenger unit revenue to grow between 2.5-4.5% year over year.

Operating revenue was a record $10.8 billion, up $344 million the same quarter last year, despite an operational interruption in April due to stormy weather.

Diluted earnings per share declined to $1.69 versus $2.03 the same quarter last year, with net income of $1.22 billion from $1.55 billion.

During the second quarter, Delta paid out $148 million in dividends and made $600 million in share repurchases.

See David Tepper (Trades, Portfolio)’s portfolio here.