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Why You Should Retain Delta Airlines (DAL) Stock for Now


Delta Air Lines, Inc. DAL, based in Atlanta, GA, posted impressive traffic results for the month of May. Consolidated traffic – measured in revenue passenger miles (RPMs) – came in at 19.14 billion, up 1.7% year over year.

Passenger revenue per available seat miles (PRASM: a measure of unit revenue) increased 3.5% on a year-over-year basis in May 2017. This strong PRASM performance in May implies that Delta is on track to achieve second-quarter guidance with respect to the metric. The metric is expected to be on the upper end of the 1–3% range in the said quarter.

The company’s efforts to enhance shareholders’ wealth through dividends and share buybacks are also appreciative. At a meeting with analysts in May 2017, Delta announced that the board of directors has approved a new share repurchase program worth $5 billion. Simultaneously, the company has expanded the quarterly dividend by over 50% to $0.305 per share.

In sync with the objective of maintaining capacity discipline, the carrier has put the cap on 2017 system capacity growth at 1%. Delta is well on track to achieve targets in the 2018–2020 time frame like operating margin in the band of 16–18% and earnings per share growth in excess of 15%. The carrier expects the operating margin to emerge in the upper half of the 17–19% range in second quarter.

The carriers’ expansion efforts also raise optimism. Delta began flight service between Hartsfield-Jackson Atlanta International Airport and Seoul-Incheon International Airport on Jun 3. The service offers more options to passengers flying to and from Asia alongside a greater cargo capacity between the U.S. and South Korea.

This apart, Delta and the Mexican counterpart Grupo Aeromexico signed a joint cooperation agreement on Jun 6 to boost their cargo operations across the United States and Mexico.

Delta’s employee-friendly approach appears impressive as well. In Feb 2017, the carrier has paid over $1 billion to its employees as part of the company’s profit-sharing plan for 2016. It stated that it has paid almost $5 billion to the employees through profit-sharing scheme during the past five years. Efforts to reduce the debt levels also raise optimism.

Driven by the above bullish factors, shares of Delta have outperformed the Zacks categorized Transportation – Airline industry over the last one month. The stock has rallied 4.85% in the last one month, while the industry gained a meager 0.93% over the same period.

Given these positives, we believe that the Delta stock should be retained by investors for now.

Zacks Rank & Key Picks

Delta currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Air France-KLM SA AFLYY, Deutsche Lufthansa AG DLAKY and International Consolidated Airlines Group SA ICAGY. All sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Air France-KLM, Deutsche Lufthansa and International Consolidated gained over 60%, 41% and 10% respectively, in the last three months.

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