Why Hold Strategy Is Apt For Delta Air Lines (DAL) Right Now

On Aug 21, we issued an updated research report on Delta Air Lines, Inc. (NYSE:DAL) .

Delta’s performance with respect to passenger unit revenues is impressive. In the second quarter, passenger revenue per available seat mile (PRASM: a key measure of unit revenue) increased 2.5% year over year p. In fact, this was the first quarter in which the carrier recorded quarterly passenger unit revenue growth since the fourth quarter of 2014. The metric’s third-quarter guidance is also encouraging which projects it to grow in the 2.5-4.5% band (on a year-over-year basis) during the period.

The company’s efforts to enhance shareholders’ wealth through dividends and share buybacks are also appreciative. In May, Delta announced that its board of directors approved of a new share repurchase program worth $5 billion. Simultaneously, the company hiked its quarterly dividend by over 50% to 30.5 cents per share.

The carrier’s employee-friendly approach also raises optimism. In February, it paid more than $1 billion to its employees as part of a profit-sharing plan for 2016.

The carrier’s initiatives to maintain capacity discipline deserve some praise. Keeping with this objective, capacity inched up only 0.4% in the second quarter of 2017. The airline’s July traffic is also laudable. Consolidated traffic – measured in revenue passenger miles (RPMs) – came in at 21.73 billion, up 2.7% year over year. This upside was driven by a 4.8% rise in domestic RPMs.

Consolidated capacity (or available seat miles/ASMs) improved 1.5% to 24.65 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers expanded 100 basis points to 88.1% on the back of traffic growth outweighing capacity expansion in July, leading to packed planes.

The carrier’s expansion plans also hold promise. Delta recently announced plans to introduce flights to Lagos, Nigeria from the airline’s New York-JFK hub. This service will be operational next year and complement the existing one to Lagos from Atlanta. Also, the carrier intends to launch non-stop flights connecting Atlanta and Shanghai which will begin next July.

In the light of these positives, we believe the Delta stock to 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 Deutsche Lufthansa (DE:LHAG) AG (OTC:DLAKY) , SkyWest, Inc. (NASDAQ:SKYW) and Air France-KLM SA (OTC:AFLYY) . While Deutsche Lufthansa and SkyWest sport a Zacks Rank #1 (Strong Buy), Air France-KLM carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Deutsche Lufthansa and Air France-KLM have soared more than 100% in a year, whereas SkyWest shares gained more than 24% in the same time frame.

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