Billionaire Warren Buffett said Saturday that its investment conglomerate Berkshire Hathaway (
BRK.A
) has sold all of its stakes in U.S. airlines after air travel was shut off in an effort to contain the fast spread of the coronavirus pandemic.
Buffett,be residences cordova who is a fond investor in the airlines industry, disclosed that Berkshire has divested its entire holdings in the U.S. four largest airline carriers: American Airlines Group Inc (
AAL
), United Airlines Holdings Inc (
UAL
), Delta Air Lines Inc. (
DAL
), and Southwest Airlines Co. (
LUV
).
“We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss […] and that was my mistake,” Buffett said. “We will not fund a company where we think that it is going to chew up money in the future.”
Buffett’s Berkshire, which has accumulated $137 billion in cash and cash equivalents, as of the end of the quarter, hasn’t invested in new ventures for some time.
“We have not done anything, because we don’t see anything that attractive to do,” Buffett, Berkshire Hathaway chairman and CEO, said at the company’s live-streamed annual meeting following its quarterly earnings release. “We are willing to do something very big. I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion. And if we really like what we are seeing, we would do it.”
U.S. airlines have been burning through billions of dollars in the first quarter incurring huge losses and implementing cost-cutting plans as the coronavirus-related global lockdown orders have brought air travel to an almost complete halt.
Citigroup analyst
Stephen Trent
last week cut American Airlines’ price target to $10 from $13, while maintaining his Sell rating on the stock.
"In light of deep global uncertainties associated with COVID-19, American Airlines seems likely to eschew the standard guidance metrics such as revenue per available seat mile or RASM, CASM-ex, etc., in favor of more timely commentary on available liquidity, capital markets access, and cost reduction potential," Trent wrote in a note to investors.
TipRanks
data
shows that overall Wall Street analysts have a Hold consensus rating on the stock based on 7 Sells, 6 Holds and 3 Buys. The $15.45 average
price target
implies 45% upside potential in the coming 12 months. (
See American Airlines stock analysis on TipRanks
)
Commenting on the magnitude and recovery potential of the coronavirus outbreak, Buffett expressed confidence that Americans will be able to endure the pandemic crisis as history has shown that prosperity followed, after crises such as the Civil War in the 1860s and the Great Depression.
“Nothing can stop America when you get right down to it,” Buffett said. “I will bet on America the rest of my life.”
Story continues
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![5%, led by a 17% increase in average ticket and a slight decline in traffic. Growth in the quarter reflected the impact of households stocking up on essentials like paper goods and cleaning supplies as the pandemic became a nationwide concern, along with strength in discretionary categories as the quarter came to a close and stimulus dollars and tax refunds were disbursed.</p><br><p>As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.</p><br><p>The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.</p><br><p>The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.</p><br><p>In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.</p><br><p>Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.</p><br><p>As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.</p><br><p>Conclusion</p><br><p>In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.</p><br><p>Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?</p><br><p>Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.</p><br><p>Disclosure: None</p><br><p>Read more here:</p><br><p>Under Armour: A Tough Start to 2020</p><br><p>Walmart: Continued Omni-Channel Progress</p><br><p>Match: An Impressive Start to 2020</p><br><p>Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.</p><br><p>This article first appeared on</p><br><p>GuruFocus</p><br><p>.</p><br><p>Warning! GuruFocus has detected 4 Warning Signs with DLTR. Click here to check it out.</p><br><p>DLTR 30-Year Financial Data</p><br><p>The intrinsic value of DLTR</p><br><p>Peter Lynch Chart of DLTR</p><br><p>View comments</p><br>](http://n.sinaimg.cn/translate/w900h626/20180314/--op-fyscsmv7050248.jpg?zdy)
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