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Hold onto Delta (DAL) Now on the Back of Several Tailwinds

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Delta Air Lines, Inc. (DAL - Free Report) has its share of positives, despite a cloud of pessimism revolving around the rising fuel costs.

Let’s analyze the upsides.

The recent deal between the United States and UAE seems in great favor of Delta. Some major U.S. carriers, namely American Airlines Group Inc. (AAL - Free Report) and United Continental Holdings, Inc. (UAL - Free Report) besides Delta had alleged that their gulf counterparts such as Emirates, Etihad Airways and Qatar Airways stand to gain unfairly due to massive subsidies obtained from their respective governments. However, the deal is to resolve this long-standing feud.

In the wake of this new deal, Delta’s CEO Ed Bastian has announced his intention to introduce new international routes. The move is likely to draw traffic on the routes, thereby boosting passenger revenues. High passenger revenues will in turn drive the carrier’s top line.

Strong demand for air travel has been aiding the airline stocks for a while now and Delta is no exception. Notably, Delta performed impressively in the first quarter of 2018 owing to the same reason. The top line increased 8.9% from the year-ago figure.

Moreover, unit revenues improved substantially in the reported period. Passenger revenue per available seat mile (PRASM) was up 4.3% year over year while total revenues per available seat miles (TRASM: adjusted) grew 5%.

The company is likely to perform well on the unit revenue front in the second quarter as well. Total unit revenues excluding refinery sales, are anticipated to rise in the 3-5% range. In addition, the company claims that robust top-line growth coupled with an improved in the cost-related scenario is expected to mitigate the impact of the rising fuel prices.

Delta Air Lines, Inc. Price and Consensus


Delta Air Lines, Inc. Price and Consensus | Delta Air Lines, Inc. Quote

The new tax law has also been supporting Delta immensely. Changes to the tax code are expected to contribute to 2018 earnings per share significantly. The company projects current-year earnings in the band of $6.35-$6.70 per share, higher than the 2017-level of $4.93.

The company’s shareholder-friendly measures are also impressive. To this end, Delta returned $542 million to its investors through dividends ($217 million) and share buybacks ($325 million) in the first quarter of 2018. The company intends to maintain the same level going forward.

In light of the above tailwinds, we believe that the stakeholders would do better to retain the Delta stock for now.

Zacks Rank & A Key Pick

Delta carries a Zacks Rank #3 (Hold). A better-ranked stock in the airline space is SkyWest, Inc. (SKYW - Free Report) , holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of SkyWest have soared more than 53% in a year.

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