Delta Air Lines: Zacks’ Bull of the Day Play

Headquartered in Atlanta, GA, Delta Air Lines (DAL) is the second-largest US airline by passenger traffic, serving about 180 million customers each year. The airline employs about 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft.  They offer service to 328 destinations in 57 countries on six continents.

Solid Third Quarter Results

The company reported its Q3 results on October 14. Profit for the quarter was $1.32 billion up from $357 million a year earlier. Earnings per share surged to $1.65 from $0.42 for the same quarter a year ago, thanks mainly to low fuel prices. Revenues decreased 0.6% year over year mainly due to adverse foreign currency movements.

The company plans to expand its domestic capacity this year but continue shrinking its international capacity in response to falling demand and currency headwinds in Europe and Asia. Overall capacity growth is expected to be modest in 2016.

Rising Estimates

Analysts have raised their estimates for the company in the past few weeks after strong results. Zacks Consensus Estimates for the next year has jumped to $6.27 per share, from 5.72 per share, before the results. The company, which reports Q4 earnings next week, has an excellent history of beating estimates as can be seen from the following chart:

Delta Beats United to Become Number 2 Airline by Traffic

Earlier this week, the airline reported 209.6 billion miles flown by paying passengers during 2015, up 3.3% year-over-year, and surpassed United to become the #2 airline in the nation by traffic. American Airlines remains at the top spot and Southwest at the fourth. These top four airlines account for 80% of the domestic traffic in the US.

Ranked #3 in 2015 Airline Scorecard

Delta scored an overall rank of 3 in the annual ranking of major airlines in operational areas by Middle Seat Scorecard. Smaller airlines—Alaska and Virgin America—occupied the top spots, while Delta’s larger peers–United and American–were at #7 and #9 respectively.

Excellent Growth Potential with Attractive Valuation

In addition to a top Zacks rank, the stock has a Style Score of “A” for both Value and Momentum and “B” for Growth. It is currently trading at an attractive multiple of 7.5 times forward earnings.

Additionally the Airline industry is currently ranked 11 out of 265 Zacks industries (top 4%), reflecting solid fundamentals for the industry.

The Bottom Line

Delta is undoubtedly one of the best run airlines in the country. The airline will continue to benefit from improving economy and growing demand for air travel, in addition to tailwinds from low fuel prices. While many of its international markets are not doing well as of now, its international presence and partnerships enhances longer-term growth potential.

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