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Delta Airlines: Will Omicron Lead to New Lockdowns?

Air travel leader Delta Air Lines (DAL) took it on the chin when news emerged of a new variant of COVID-19 known as "omicron." Several airlines found themselves in similar positions.

I remain bullish overall on Delta and the rest of the travel sector, mainly because I look for the leave-the-house recovery to continue to at least some degree. (See Analysts’ Top Stocks on TipRanks)

Looking at Delta's stock charts for the year so far shows a stock that might best be described as "turbulent." January's end saw a monster run-up in the company's share price. This was promptly followed by a series of gains, losses, and new highs.

The mood shifted with April, however, and the company began a stuttering slide downward. The company made gains but lost them almost as quickly. September featured a recovery back to the $45 mark, but a decline under $40 followed. Another push towards $45 followed, but the optimism faded. Delta lost around 20% of its share value during November. (See Delta stock charts on TipRanks)

Delta found itself in the middle of a tug-of-war between the reopening economy and the lockdown economy. The discovery of a new variant of COVID-19, dubbed "omicron," sparked fears about new lockdowns emerging. Such lockdowns would send Delta back into the sleepwalking status it occupied for most of 2020.

Word from South African doctors—who are currently in the epicenter of omicron cases—note that omicron-related cases are showing "extremely mild" symptoms so far.

Reopening or Lockdown Redux?

The question is much the same as it's been for nearly the last two years now. Will economies be allowed to reopen, or will they be forced to close?

Markets are understandably gunshy about the notion of lockdowns because there's so little the market can do in response to them. Lockdowns are a government function. The government will function as the government does.

It may or may not even care what the markets think in response. Look at the last set of lockdowns; there was a lot more locking down in blue states than red states in the U.S. Similar conditions emerged worldwide as liberal governments shut down while conservative ones stayed open.

Yet from that same political standpoint, we have schisms emerging. In the U.S., for example, gubernatorial races will be kicking off directly. Governors come up for re-election in many states in 2022.

Michigan's Gretchen Whitmer, for example, is up for re-election in a formerly lockdown-heavy state. It's a safe bet she wants as few people as possible remembering her lockdown excesses of 2020. Said excesses briefly saw Michiganders unable to buy paint by state mandate.

While the revival of lockdown protocols is making somewhat of a comeback, it's not without a fight. The new coalition government in Germany is actively resisting Angela Merkel's call for lockdown returns. That's good news for companies like Delta, which depend on travel to exist.

The South African news that omicron cases have proven extremely mild so far is likely good news for the lockdown-weary. That leaves the reopening economy in a good position and Delta looking solid as well.

Wall Street's Take

Turning to Wall Street, Delta has a Moderate Buy consensus rating. That's based on six Buys and six Holds assigned in the past three months. The average Delta price target of $52.30 implies 42.8% upside potential.

Analyst price targets range from a low of $46 per share to a high of $62 per share.

Concluding Views

Markets are right to fear lockdowns. We've seen the economic catastrophe that was created from the last one first-hand. We're still feeling some of the aftereffects; just ask anyone who's tried to buy an Xbox Series X in the past year. Companies that depend on fully-open economies like Delta are particularly concerned about losing their primary income stream.

A locked-down economy travels very little. Companies like Delta don't have much to fall back on; it's impossible for pilots to work remotely, after all. Granted, Singapore Airlines' plan to turn two of its planes into pop-up restaurants didn't exactly fare badly.

However, it's questionable how well such a plan may transfer. Still, the political will for lockdowns seems in decline overall. That's good news for travel-based companies like Delta, and that's why I stand bullish herein.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >

This article originally appeared in nasdaq.

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