Aggressive · Stocks to Consider and Updates

Delta Posts Record Revenues; Hikes Dividend

Atlanta’s Delta Air Lines (NYSE: DAL – $50.42) reported second-quarter earnings and revenue that were better-than-expected. Adjusted earnings were $1.77 per share, up from $1.64 a year earlier and the Street estimate of $1.72. Revenue for the period was reported at $11.78 billion, up almost 10% from last year and topping forecasts for $11.73 billion. Total unit revenues excluding refinery sales increased 4.6%. Domestic revenue grew 7.6% year-over-year, Atlantic revenue jumped 14% and Pacific sales gained 6.9%. Latin America was the only decliner, falling 0.8% from a year ago. Total passenger revenue gained 8%, cargo revenue jumped 19% and other revenue surged 27%. Looking ahead, full-year earnings are forecast by Delta at $5.35 to $5.70 versus expectations of $5.69. Third-quarter earnings are pegged between $1.65 and $1.85, in line with expectations. Chief Executive Ed Bastian said Delta expects its fuel bill to rise by $2 billion in 2018, but it’s “seen early success” in addressing the increase and offset two-thirds of the impact of rising fuel in the June quarter. Fuel expenses rose by $578 million, or 33%, versus the same quarter a year earlier.  Bastian went on to say, “With strong revenue momentum, an improving cost trajectory and a reduction of 50-100 basis points of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end. Together with the earning’s release, the company’s board approved a 15% increase in the dividend to $0.35 per share for the September quarter, which will yield investors 2.7% on an annualized basis.

       I still believe DAL is undervalued given its high-quality international footprint and recent growth in revenue and earnings. Hence, I think the stock is deserving of a higher price-to-earnings multiple based partly on its favorable positioning relative to rivals. Long-term positions, in aggressive accounts can be maintained.



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