IBM Stock vs. Delta Air Lines

Given its better prospects, we believe that Delta Air Lines (NYSE: DAL) is a better pick than computing behemoth IBM (NYSE: IBM). The decision to invest often comes down to finding the best stocks within the scope of certain characteristics that suit an investment style. In this case, although these companies are from different sectors, they share a similar revenue base of $60-62 billion. Although Delta has seen better revenue growth, IBM is more profitable and has a better financial position. There is more to the comparison, and in the sections below, we discuss why we think DAL will outperform IBM in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.

1. IBM Stock Has Fared Better Than DAL

IBM stock has seen strong gains of 130% from levels of $100 in early January 2021 to around $230 now, vs. an increase of about 25% for DAL stock from levels of $40 to $50 over the same period. In comparison, the S&P500 index has seen a 50% rise over this roughly four-year period.

IBM is one of a handful of stocks that have increased their value in each of the last three years, but that still wasn’t enough for it to consistently beat the market. Returns for IBM stock were 16% in 2021, 11% in 2022, and 22% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that IBM underperformed the S&P in 2021 and 2023. On the other hand, the returns for DAL stock were -3% in 2021, -16% in 2022, and 23% in 2023 — indicating that DAL underperformed the S&P, also, in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including CSCO, COMM, and AAPL, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

2. Delta’s Revenue Growth Has Been Better Than IBM’s

IBM has seen its revenue rise at an average annual rate of 4% from $55.2 billion in 2020 to $61.9 billion in 2023. On the other hand, Delta’s average revenue growth rate of 53% from $17.1 billion to $58 billion over this period has been much faster.

IBM’s Revenue growth is being led by its software products, driven by higher sales of Red Hat products and Data & AI solutions.  Red Hat, which was acquired in 2019, has been a key growth driver for IBM, given its large portfolio of open-source technology, its hybrid cloud platform, and its large developer community. IBM’s consulting business has also been doing well, despite a tough market for IT spending.

Although AI hasn’t really been a big revenue driver for IBM, this trend is expected to change. IBM has been looking to capitalize on the rising demand for AI in the enterprise space. Last year, it introduced Watsonx, its core platform that enables enterprise clients to train, tune, validate, and deploy customized AI models for their businesses. IBM has said that client demand for AI solutions has been accelerating, with its book of business for Watsonx and generative AI seeing strong growth lately. Look at Watsonx Can Help IBM Stock Gain Lost Ground for more details.

Delta Air Lines’ Revenue growth is being led by a recovery in travel demand post pandemic. It has seen its capacity expand, and average yields rise in recent years. For perspective, its total available seat miles (ASMs) rose 2x from 134 billion in 2020 to 272 billion in 2023, while its passenger yield rose 20% from $0.18 to $0.21 over this period. 2020 was a slump year for most of the airlines given the travel restrictions. Delta’s 2023 ASM is still lower than 275 billion seen in 2019, before the pandemic.

However, the airlines in the U.S. at large have had a tough start to 2024. Looking at the previous quarter, Delta Air Lines’ revenue of $15.45 billion (adjusted) in Q2 was up 5% y-o-y, driven by an 8% rise in the total available seat miles. The passenger revenue per available seat mile was down 3% due to lower yield and a 100 bps decline in the load factor to 87%.

Looking forward, we expect IBM’s revenue to rise at a mid-single-digits average annual rate over the next three years, while Delta’s revenues are expected to rise at a low single-digit average rate.

3. IBM Is More Profitable 

IBM operating margin expanded from 8.4% in 2020 to 15.2% in 2023, while Delta’s operating margin improved from -24.9% to 9.1% over this period. IBM has been focused on cutting costs, indicating that it would reduce costs in 2024 by $3 billion, up from its prior estimate of $2 billion via headcount reduction and greater automation. For Delta, the margins are under pressure lately amid rising costs, including fuel. The Jet Fuel Price is trading around $88 per barrel now, up 3% from the September average, after the escalation of geopolitical conditions in the Middle East. Looking at the last twelve-month period, IBM’s operating margin of 15% fares better than 10% for Delta.

4. IBM Offers Lower Financial Risk

Looking at financial risk, IBM fares much better than Delta. Its 28% debt as a percentage of equity is much lower than 80% for Delta. Also, its 10% cash as a percentage of assets is higher than 6% for the latter. This implies that IBM has a better debt and cash position.

While DAL may outperform IBM in the next three years, it is helpful to see how IBM’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 10/9/2024
[2] Cumulative total returns since the end of 2016