Shares of leading passenger and cargo carrier, Delta Air Lines Inc. (DAL), hit a new 52-week high of $50.16 on Dec 31, 2014, finally ending the session slightly lower at $49.19. The company’s shares have gained 78% in the past one year.
Fuel costs comprise nearly 30% of the total operating expenses incurred by airline companies. Since June this year, crude oil prices have gone down by 30%, translating into impressive profits garnered by airline stocks in the third quarter of 2014.
Ever since the company announced robust third-quarter earnings on Oct 16, shares have jumped 48%. Delta reported adjusted earnings of $1.20 per share in the quarter, edging past the Zacks Consensus Estimate of $1.18. Operating revenues increased 7% year over year to $11.2 billion, in line with the Zacks Consensus Estimate. Notably, in all of the last four quarters, the company’s earnings have surpassed the Zacks Consensus Estimate, with an average beat of 4.9%.
Additionally, earnings estimate revisions have also exhibited a positive trend. In the past 90 days, the company has witnessed positive estimate revisions for the current year leading to the Zacks Consensus Estimate moving up by 2.2% to $3.30.
We expect Delta to perform impressively on various strategic measures such as solid domestic demand, route launches, introduction of ancillary products, revamping of fleet structure and efficient customer service. Further, Delta continues to deliver solid results through its joint venture and expects trans-Atlantic revenues and capacity to increase owing to strength in the New York-London route.
Delta is also progressing well on improving ancillary revenues by adding features to its services and introducing products to improve passenger satisfaction and experience, both in air and on ground. In an attempt to enhance its fleet structure, amenities, products and technological base, Delta aims to invest $2.0–$3.0 billion per year.
Zacks Rank
Delta currently has a Zacks Rank #1 (Strong Buy). Some other airline stocks that warrant a look are Southwest Airlines Co. (LUV), American Airlines Group Inc. (AAL) and SkyWest Inc. (SKYW). All these stocks sport the same rank as Delta.
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