Delta Air Lines (NYSE: DAL) is an Atlanta, Georgia based American airline that runs over 5,400 international and domestic flights on a daily basis.
Delta Air Lines In The News
Delta Air Lines released its third quarter report on October 16th and its results barely beat analysts’ expectations despite Ebola fears. Much of the public has become reluctant to fly due to the media frenzy over the Ebola virus. With that said, Delta’s earnings do not seem to be affected by this sentiment. “With another record profit, solid margin expansion and nearly $1 billion of free cash flow, Delta’s results are consistent with high-quality S&P 500 industrials,” said Richard Anderson, Delta’s chief executive officer. “While we have more work ahead of us to achieve our long-term financial goals, we expect a record fourth quarter of 2014 with an operating margin of 10-12%. For the full year, we expect a pre-tax profit in excess of $4 billion. We have the right foundation in place for an even stronger 2015, proven strategies for Delta, and 80,000 Delta employees who are the very best in the industry.”
In its Q3 results, Delta reported $1.20 earnings per share on a Non-GAAP basis, beating analysts’ expectations of $1.18 by $0.02. During the same quarter last year, the Internet giant posted $1.59 earnings per share. The company earned revenue of $11.18 billion, compared to the analysts’ consensus estimate of $11.11 billion. Delta’s quarterly revenue went up 6.6% on a year-over-year basis.
A Financial Expert’s Opinion
On October 16th, Deutsche Bank analyst Michael Linenberg reiterated a Buy rating on Delta Air Lines with a price target of $48. He reasoned, “Delta reported Sep Q diluted EPS of $1.20 exceeding our forecast of $1.15 and the consensus of $1.18. A year ago Delta reported diluted EPS $1.41, however, underlying last year’s result was the absence of book taxes whereas in the current quarter Delta booked a 38% tax rate. Total revenue was $11.2 billion, about $100 million better than our forecast, and represented a 6.5% increase versus a year ago…Other and cargo revenue came in better than our forecast. Unit costs ex-fuel, profit-sharing and specials increased a modest 0.3% as Delta targets non-fuel cost growth of no more than 2%. Overall, the company reported a 15.8% operating margin which was 260 basis points better than a year ago.” Linenberg has rated Delta Air Lines 9 times, earning an 89% success rate recommending the stock with a +49.9% average return.
Linenberg’s Past Recommendations
Linenberg has a history of rating airline stocks, such as Alaska Air (NYSE: ALK) and Allegiant Travel Company (NASDAQ: ALGT), helping him earn a 64% success rate recommending stocks, a +24.6% average return per recommendation, and the #67 ranking out of 3358 analysts on TipRanks.
On July 30th of this year, Linenberg reiterated a Sell rating on Alaska Air, noting “While returns thus far this year are clearly admirable, our sell rating on ALK shares reflects our view that financial results for the second half of the year and into 2015 may be at risk, given excessive capacity additions in some of Alaska’s key markets (e.g. Seattle).” Linenberg has rated Alaska Air 7 times, earning an 80% success rate recommending the stock.
Separately on April 8th, Linenberg upgraded his rating for Allegiant Travel Company from Hold to Buy and raised his price target from $110 to $130. He explained, “The significantly better earnings trends are a complete about face from where we were at the start of the year when we believed the shares were fully valued and at risk of a pull-back (a view that was subsequently reinforced by the release of December quarterly results). Hence, we are raising our rating on ALGT shares from Hold to Buy.” Linenberg has rated Allegiant Travel Company 5 times, earning a 75% success rate recommending the stock.
However, Linenberg has not always been so accurate with his recommendations. On March 6th of this year, Linenberg upgraded his rating for Hawaiian Holdings (NASDAQ: HA) from Hold to Buy and raised his price target from $10 to $16. He noted, “We believe these recent route decisions demonstrate that Hawaiian is willing to make the tough decisions and that there are no sacred cows.” Linenberg has rated Hawaiian Holdings 4 times with a 0% success rate and a -7.4% average return.
Michael Linenberg has experience in rating airline travel stocks. Do you trust his latest recommendation based on his previous track record?