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Why Delta (DAL) Stock is a Must-Add to Your Portfolio Now

Zacks Equity Research
Updated
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In the past year, Delta Air Lines, Inc. DAL has outperformed the S&P 500 index, of which Delta is a member. Shares of the company have gained 18.5% compared with the S&P 500 index’s rally of 16.4%.

Lets delve deep to unearth the reasons behind the company’s impressive price performance.

Delta has a solid earnings surprise history, having reported better-than-expected earnings per share in three of the trailing four quarters. Also, in the fourth quarter of 2017, this Atlanta, GA- based carrier’s earnings and revenues exceeded estimates and improved year over year. Results were aided by strong demand for air travel during the holiday season. 

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Additionally, the company performed well on the unit revenue front. Total revenues per available seat miles (TRASM: excluding refinery sales) increased 4.4% (on a year-over-year basis) in the quarter. The metric is projected to lie within 4-5% in the first quarter of 2018. Apart from Delta, other airline players like United Continental Holdings, Inc. UAL, Hawaiian Holdings, Inc. HA and JetBlue Airways Corporation JBLU are expected to perform well on the unit revenue front in the same time period.

In fact, a solid earnings track record generally works as a catalyst in boosting the stock price. This is because it indicates the company’s ability to surpass earnings estimates. More often than not, investors take into account a company’s buoyant earnings history while betting on the stock, with the expectation that it will continue surpassing earnings estimates in its next releases.

Furthermore, the company’s efforts to reward shareholders through dividends and share buybacks raise optimism on the stock’s performance. To this end, Delta returned $2.4 billion to shareholders through the above-mentioned shareholder friendly initiatives in 2017. Notably, this was the third consecutive year in which the carrier returned at least 70% of free cash flow to its investors. Going ahead, Delta intends to maintain the same level.

Moreover, the company’s employee-friendly approach along with efforts to reduce its debt levels to modernize its fleet is impressive. Also, the new tax law, which reduces corporate tax rate significantly, is an added positive for Delta. Changes to the tax code is expected to boost 2018 earnings per share significantly.

A Broker Favorite

Delta’s earnings estimates reflect a healthy uptrend. Evidently, the company has witnessed the Zacks Consensus Estimate for current-quarter and current-year earnings being revised 1.3% and 0.4% upward, respectively, in the last 30 days.

Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Zacks Rank & Style Score

Taking into account the above-mentioned tailwinds, we believe that the current price performance represents an attractive entry point for investors. Delta’s Zacks Rank #2 (Buy) also supports our view. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Additionally, the company’s VGM Score of B highlights its attractiveness. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.

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JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
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Zacks Investment Research