Imperial Capital Maintains Outperform On Delta Air Lines Following Investor Day


In a research report sent to investors today, Imperial Capital analyst Bob McAdoo maintained an Outperform rating on Delta Air Lines (NYSE:DAL) with a $69 price target, which represents a potential upside of 44% from where the stock is currently trading.

Mcadoo wrote, “Investor Day commentary outlines long-term operating goals and DAL’s belief, with which we concur, that the company should trade at multiples similar to other S&P Industrials. Within its Investor Day presentation on 12/11/14, Delta outlined its long-term operating and balance sheet goals. The company is targeting annual EPS growth of between 10% and 15%, consistent with consensus growth of 12% for other S&P 500 industrial companies. Operating margins should continue to be 11-14%, though we believe lower fuel prices could drive significantly higher operating margins in 2015.”

Furthermore the analyst wrote, “Long-term return on invested capital is expected to be between 15% and 18%, above the consensus estimate of 14.5% expected in 2014-2016 for DAL’s S&P industrial peers In terms of the balance sheet, management is targeting adjusted net debt of $5.0bn by 2016, down from $7.2bn adjusted net debt expected at year-end 2014. Per management, Delta has been the third best performing stock in the S&P 500 over the last two years and will have higher 2014 free cash flow than 85% of the S&P 500 Industrials. However, DAL shares currently trade at the second lowest P/E multiple of the group. Management believes, and we agree, that Delta’s trading multiple should converge with industrial peers over time.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Bob Mcadoo has a total average return of 37.4% and a 88.6% success rate. Mcadoo has a 52.6% average return when recommending DAL, and is ranked #4 out of 3412 analysts.

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