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Delta (DAL) Rallies 23% in a Year: What's Aiding the Stock?

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Shares of Delta Air Lines, Inc. (DAL - Free Report) have rallied around 23% in a year against the industry’s 2% decline in the period.


Catalysts Behind the Upsurge

Strong demand for air travel has been aiding the company in generating  significant passenger revenues. Passenger revenues rose an impressive 8% in the first six months of the year. Since passenger revenues account for the bulk of Delta’s top line, rise in the metric contributes to its overall profitability. Further, the same is expected to boost the carrier’s third-quarter results.

The buoyant scenario is also evident from the company’s encouraging unit revenue figures. Passenger revenue per available seat mile (PRASM) was up 4.4% during the first six months of 2018 while total revenues per available seat miles (TRASM: adjusted) climbed 4.8%. Additionally, the carrier envisions third-quarter total unit revenues excluding refinery sales to increase in the band of 3.5-5.5%. Also, the airline anticipates earnings per share to be between $1.65 and $1.85 in the quarter. This compares to earnings of $1.57 per share reported in the year ago period. The figures clearly raise optimism.

Delta’s expansion initiatives are also anticipated to drive profitability going forward. The company’s decision to broaden its trans-Atlantic network next year is a prudent strategy as it tries to attract traffic on the key-revenue generating routes. Notably, Delta’s revenues from the Atlantic region increased 13.9% year over year in the second quarter, the maximum among all its regions.

Under the route expansion plan across the Atlantic, the airline behemoth decided to introduce year-round nonstop flights connecting Tampa Bay, FL to Amsterdam, expected to be operational from May 23, 2019. To meet the surge in demand, Delta also increased the frequency of its service connecting Los Angeles to Amsterdam and Paris. Flights to both these key European destinations will operate daily from Jun 16, 2019 onward.

The company’s efforts to reward shareholders through dividends and share buybacks are also encouraging. During the first half of 2018, the company returned $1.35 billion to its shareholders via dividends ($430 million) and share buybacks ($925 million). Also, the company’s board cleared a dividend hike to the tune of 15%. With the amended tax law, we expected an uptick in such shareholder-friendly activities. This is because companies are now left with more cash at disposal to fund these moves owing to reduced corporate tax rates leading to huge tax savings.

Amid positivity, the Zacks Consensus Estimate for current-quarter earnings has moved up to $1.76 per share from $1.75, 30 days ago.

Zacks Rank & Key Picks

Delta carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) , Trinity Industries, Inc. (TRN - Free Report) and SkyWest, Inc (SKYW - Free Report) . While GATX holds a Zacks Rank #2 (Buy), Trinity and SkyWest sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX, Trinity and SkyWest have rallied more than 37%, 22% and 82%, respectively, in a year.

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