Delta, UAL, American Drop 5%. Blame Brazil?

Latin America’s soccer obsession slowed June business travel, fueling a decline in airline stocks.

Delta Air Lines  is leading the pack after reporting traffic figures for the past month; its shares are down 5.5%. American Airlines  also is off 5%, and United Continental Holdings is off 6.4%. Domestically-oriented airlines fared better, but shares also are in the red: JetBlue Airways and Alaska Holdings are each down roughly 2%, while Southwest Airlines is down nearly 1%.

The latest data from Delta Air Lines showed June passenger revenue per available seat mile rose 4.5%, below expectations. Overall, traffic grew by 3%, in line with capacity growth. Management focused on lower-than-expected international yields, “driven by industry-wide capacity increases and lower business demand to Latin America due to the World Cup.”

Cowen analysts Helane Becker and Conor Cunningham think that with Delta expecting $1.5 billion in free cash flow for the quarter, net debt below $8.0 billion, and dividends and share repurchases in place, “this sell-off is an opportunity for investors to buy these shares.” Cowen’s price target of $45 is 18% above the current price near $38.

Becker and Cunningham write:

“We expect the situation in Latin America to improve once the World Cup ends later in the month. We think there is likely to be pent-up business demand for August and September to Brazil and are not inclined to over-react to one data point. Delta’s Pacific capacity was actually down in the month; Atlantic capacity was up by 1.0%. Capacity to Latin America was up by 23.5%; we believe if demand for the seats is not there, Delta will reduce capacity. Forward bookings for July and August are still quite strong, and pricing in the domestic market remains strong.”