Delta Air Lines, Inc. (DAL - Free Report) has been riding high on the back of solid passenger traffic. Strong demand for air travel is boosting the carrier’s passenger revenues (accounting for approximately 90% of the top line) and in turn, solidifying its growth prospects. With robust growth in free cash flow, the company’s measures to reward shareholders through dividends and share buybacks are also noteworthy.
Let’s delve into the details.
With air travel demand remaining strong, Delta’s passenger revenues have increased 7% to $20.62 billion in the first six months of 2019. The company’s unit revenues also improved in the first half of the year. While passenger unit revenues inched up 1.8%, total unit revenues (adjusted) increased 3.1%. Going forward, these metrics are anticipated to continue with this uptrend. Notably, total unit revenues, on an adjusted basis, are anticipated to increase 1.5-3.5% in the current quarter. On a further positive note, Delta raised its current-year earnings projection to $6.75-$7.25 per share (earlier view: $6-$7), anticipating strong demand.
The airline’s earnings forecast for the third quarter also indicates an improvement from the year-ago reported figure. For the current quarter, Delta expects earnings (excluding special items) between $2.10 and $2.40 per share, suggesting a rise from $1.80 achieved in the year-ago quarter. Low fuel prices should aid the carrier’s performance in the third quarter. Fuel prices including taxes, settled hedges and refinery impact are predicted in the band of $1.95-$2.15 per gallon in the ongoing quarter, implying a decline from $2.22 reported in the third quarter of 2018.
As far as the carrier’s investor-friendly endeavors are concerned, this July, the company’s board cleared a dividend hike of 15% to 40.25 cents per share (annualized: $1.61). During the second quarter, Delta returned $497 million to its shareholders through dividends ($229 million) and share buybacks ($268 million). Moreover, it completed the repayment of the $1-billion short-term loan, utilized to expedite the share repurchase in the first quarter of 2019.
Additionally, the carrier’s efforts to strengthen its foothold in the lucrative Asian aviation market are commendable. To this end, in June, the carrier bought a 4.3% stake in Hanjin Kal Corporation, the largest shareholder of Korean Air Lines. Subject to regulatory approvals, the airline plans to increase its stake to 10%.
Amid this optimism, the Zacks Consensus Estimate for the company’s current-quarter earnings has been revised 10.8% upward in the last 60 days. The same for 2019 earnings has moved 5.9% north over the past 60 days.
Moreover, shares of the company have rallied more than 17% so far this year, outperforming the industry’s 4% rise.
Against this backdrop, we advise investors to snap up the Delta stock as suggested by the company’s Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Key picks
Some other top-ranked stocks in the same space are Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (VLRS - Free Report) , Copa Holdings, S.A. (CPA - Free Report) and Gol Linhas Aereas Inteligentes S.A. (GOL - Free Report) , each sporting a Zacks Rank of 1.
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