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Delta (DAL) Stock Gains 19% Year to Date: More Upside Left?

Zacks Equity Research

Delta Air Lines DAL has had an impressive run on the bourses so far this year on the back of the tailwinds like healthy demand for air travel and its shareholder-friendly approach. Evidently, shares of this Atlanta, GA-based airline behemoth have gained 19%, outperforming its industry’s 7.3% growth on a year-to-date basis.



Let's delve deep to unearth the reasons behind the company's impressive price performance and find out if there is room for further appreciation:

Delta is benefiting from upbeat passenger revenues on account of robust demand for air travel. In the first half of 2019, passenger revenues, which account for the bulk of the company's top line, increased 7%. In fact, strong passenger revenues have helped the company outperform on the bottom-line front in the first two quarters of 2019.

Anticipating demand to remain strong, Delta raised the current-year earnings projection in July. The carrier now expects 2019 earnings per share between $6.75 and $7.25 (earlier view: $6-$7 per share). For the current year, earnings per share are expected to increase 25% year over year.

We are also impressed by the company’s efforts to reward its shareholders through dividends and buybacks. In the first six months of 2019, Delta returned more than $2 billion to its shareholders through dividends ($462 million) and share buybacks ($1,568 million). In fact, the carrier has returned $14 billion to its shareholders via dividends and share buybacks since 2013.

Moreover, the company’s board cleared a dividend hike of 15% in July. As a result of the hike, the current quarterly dividend is 40.25 cents per share.

Delta’s employee-friendly approach is an added positive. Its efforts to reduce debt levels are also commendable. Furthermore, the carrier is taking initiatives to strengthen its foothold in the lucrative Asian aviation market.

In a bid to meet the surge in demand during summer, Delta has decided to boost its UK capacity to the tune of 15% next year.

A Broker Favorite

Delta’s earnings estimates reflect a healthy uptrend. Evidently, the Zacks Consensus Estimate for current-quarter and year earnings has been revised 10.8% and 5.5% upward, respectively, over 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.

Solid Projections

The Zacks Consensus Estimate for Delta’ 2019 earnings is currently pegged at $7.07, indicating 25.1% growth from the year-ago reported figure. The same for 2020 stands at $7.40, mirroring a year-over-year improvement of 4.6%.

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In addition, Delta has an impressive EPS growth rate (three to five years) of 18%, higher than its industry’s 17.1%.

The projection with respect to the top line is also impressive. The Zacks Consensus Estimate for Delta’ 2019 sales is currently pegged at $46.82 billion, suggesting a 5.4% improvement from the figure reported a year ago. The same for 2020 is pinned at $48.95 billion, reflecting a year-over-year improvement of 4.6%.

Zacks Rank & Other Key Picks

Delta carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Allegiant Travel Company ALGT, SkyWest SKYW and GOL Linhas GOL carrying the same rank as Delta. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Allegiant, SkyWest and GOL Linhas have appreciated more than 51%, 33% and 21%, respectively, so far this year.

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Allegiant Travel Company (ALGT) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
 
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Zacks Investment Research