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Delta (DAL) Shares Decline More Than 4% Post Investor Day

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Delta Air Lines, Inc. (DAL - Free Report) recently provided an outlook for 2019 and the long term at its Investor Day.

The company anticipates double-digit earnings growth in 2019 with earnings per share projected between $6 and $7. The Zacks Consensus Estimate for the same stands at $6.55. Also, revenues are expected to grow 4-6% next year. The consensus estimate forecasts a 5.8% year-over-year top-line improvement. Although upbeat, these projections somewhat fell short of expectations, inducing investors’ skepticism surrounding the stock. Consequently, shares of the company lost 4.8% at the close of business on Dec 13.

This Zacks Rank #3 (Hold) company’s conservative outlook had a ripple effect on fellow players in the industry. Notable industry players like American Airlines (AAL - Free Report) , United Continental Holdings (UAL - Free Report) and Southwest Airlines (LUV - Free Report) also saw shares going downhill. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Meanwhile, with fuel prices predicted to decline in 2019, the airline hopes for a reduction of nearly $300 million in fuel expenses. Non-fuel unit costs are estimated to inch up approximately 1% in the year. Also, capital expenditures are likely to total $4.5 billion next year. Additionally, pre-tax margin is expected to improve 100 bps at midpoint.

Delta also stated that it will remain focused on rewarding shareholders with dividends and buybacks. The carrier expects to return shareholders $2.5 billion in 2019. The company currently has a share repurchase authorization of $5 billion, to be completed in 2020. Free cash flow for 2019 is pegged at $3-$4 billion.

Fleet transformation is envisioned to be the major growth catalyst in 2019. To this end, Delta has planned 3% capacity growth, almost in line with consumer spending of 3.3%.  The airline will add more fuel-efficient aircraft with reduced seat costs. Moreover, the carrier hopes to replace approximately 35% of its mainline fleet by 2023. Average seats per aircraft are projected to increase 2% annually in the 2018-2023 period. Meanwhile, premium seats are expected to rise 40% per aircraft yearly over the same time period.

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