Delta Keeps Flying Higher !

Ready to Breakout Further – Earnings Due Thursday, July 13, 2017

July 09, 2017

** OPTION TRADE: Buy the DAL Sept 15 2017 55.000 CALL at approximately $2.65. Place a pre-determined sell at $5.30.

Note: Add a protective stop loss of $1.05.

Also Note: This is a recommendation and investors/traders can use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

by Ian Harvey

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The growth in airlines has been fast and furious in recent years; boosted by stronger economic conditions, cheaper fuel, and plenty of industry merger and acquisition activity.

The Transportation sector, as mentioned in the recent article “Stock Market Correction Completed!” due to multiple tailwinds, is expected to perform well in this earnings season; and the airline part is predicted to do extremely well.

There is plenty of optimism surrounding the airlines continued upward momentum which is reflected in:-

  • solid earnings estimate revision activity for the airline industry,
  • the out-performance of the S&P 500 Index during the April - June time-frame. While the S&P 500 Index has gained 3.3%, the industry added 10.9% in Q2, and
  • commercial airlines have been enjoying their strongest price action so far in 2017.

The Atlanta, GA-based giant Delta Air Lines (NYSE:DAL), a provider of scheduled air transportation for passengers and cargo throughout the United States and across the world, has managed to grab a huge chunk of the global market, enjoying its strongest price action so far in 2017. Delta Air Lines, Inc. (DAL) has benefited from this bullish turn, with the stock finally breaking out above stubborn resistance in the low $50s.

Delta Air Lines will kick off the airline sectors earnings season, when it reports on Thursday, July 13, before the market opens.

Analysts expect $1.64 EPS, up from last year’s $1.47 per share. DAL’s profit will be $1.16 billion for 8.50 P/E if the $1.58 EPS becomes a reality. After $0.77 actual EPS reported by Delta Air Lines, Inc. for the previous quarter, Wall Street now forecasts 105.19 % EPS growth.

Analysts predict that Delta Air Lines will report $10.78 billion in sales for the current fiscal quarter. Delta Air Lines reported sales of $10.45 billion in the same quarter last year, which indicates a positive year over year growth rate of 3.2%.

The stock has been up 20.8% in the last three months; easily outperforming the categorized Transportation Airline industry's gain of 9.7%.

After more than two years of persistent unit revenue declines, Delta Air Lines (NYSE: DAL) is finally set to report a return to unit revenue growth for the second quarter of 2017. This will also allow it to post strong year-over-year profit growth in Q2.

With Delta Air Lines returning to form, Delta shares should finally be ready to rally and fly higher.

Delta's June Passenger Revenue per Available Seat Mile (PRASM) rose 2.5% after growing 3.5% in May and 1% in April, meeting or exceeding the second quarter's 1-3% guidance. Those metrics predict that Delta will meet or exceed estimates in its July 13 earnings report, while solid results in the quarter's second half also suggest bullish fiscal year guidance that could add a good dose of momentum to recent buying pressure.

Delta Air Lines has a 52 week low of $34.08 and a 52 week high of $54.84. The firm has a 50-day moving average of $50.96 and a 200 day moving average of $48.99. The firm has a market capitalization of $39.58 billion, a PE ratio of 10.03 and a beta of 1.22.

Influencing Factors to Consider

Delta is well-positioned to keep posting strong results for the rest of 2017 -- and perhaps into 2018. Delta's strong May and June unit revenue results bode well for the upcoming summer peak season.

Also, unit cost growth is set to subside. Management has stated that adjusted non-fuel unit costs will increase less than 2% year over year in the second half of 2017, compared to an increase of more than 4% in the first half of the year. Furthermore, fuel prices are on pace to be roughly even with the year-earlier period in the second half of 2017.

The net result is that Delta Air Lines should be able to deliver continued margin expansion and profit growth in the next two quarters.

The company received a further boost when it reported impressive June traffic data last Wednesday and unveiled a bullish view for its financial and operating performance during the month of June:-

  • Passenger Revenue per Available Seat Mile (PRASM), for the month of June increased 2.5% year over year.
  • Delta also reported that passenger unit revenue increased 2.5% year-over-year. Revenue passenger miles rose 2.8%, with domestic RPM's posting a 3.9% uptick, compared to June 2016.
  • Capacity was higher 1.8% to 23.5 billion available seat miles, and domestic available seat-miles climbed higher over 3.1%, when compared to the same period a year ago.
  • Apart from the bullish passenger unit revenue view, Delta also raised the lower end of its guidance for pre-tax margin. Currently, the airline expects the metric to be in the range of 18% to 19% (previous guidance was in the band of 17% to 19%).

Delta has seen solid earnings estimate revision activity over the past month; suggesting analysts are becoming a bit more bullish on the firm's prospects in both the short and long term.

In fact, over the past month, current quarter estimates have risen from $1.60 per share to $1.64 per share, while current year estimates have risen from $5.20 per share to $5.35 per share.

Analysts and Hedge Funds Opinions

Zacks Investment Research upgraded shares of Delta Air Lines from a hold rating to a strong-buy rating in a report released last Tuesday. They currently have $62.00 price target on the transportation company’s stock.

According to Zacks, “Shares of Delta rallied 19.9% in the last three months; handily outperforming the Zacks categorized Transportation Airline industry's gain of 10.2%.  Delta received encouraging news recently on the passenger unit revenue front. The metric registered 3.5% year over year growth in May.  The company is expected to perform well in the second quarter, results of which should be released later in the month. The positive sentiment surrounding the stock can be gauged from the fact that  the the Zacks Consensus Estimate for the second quarter has increased 2.5% over the last month to $1.64 per share. The company's decision to hike quarterly dividend is also reassuring. Moreover, we are impressed with Delta’s employee-friendly approach as well as expansion and debt-reduction efforts. However, increasing costs are likely to once again hurt bottom-line growth in the second quarter of 2017.”

Several other analysts have also recently commented on the company…..

  • Deutsche Bank AG raised their price target on Delta Air Lines from $56.00 to $58.00 and gave the company a buy rating in a report on Tuesday, April 18th.
  • ValuEngine raised Delta Air Lines from a buy rating to a strong-buy rating in a report on Tuesday, June 20th.
  • Finally, Citigroup Inc. raised their price target on Delta Air Lines from $63.00 to $65.00 and gave the company a buy rating in a report on Friday, May 12th.

Four analysts have rated the stock with a hold rating, thirteen have issued a buy rating and three have issued a strong buy rating to the company’s stock. The stock has a consensus rating of Buy and an average target price of $61.00.

Several institutional investors have recently made changes to their positions in the stock…..

  • Bank of The West boosted its position in Delta Air Lines by 1.4% in the first quarter. Bank of The West now owns 267,286 shares of the transportation company’s stock valued at $12,284,000 after buying an additional 3,782 shares in the last quarter.
  • Hanlon Investment Management Inc. bought a new stake in Delta Air Lines during the fourth quarter valued at about $2,816,000.
  • Regent Investment Management LLC raised its stake in Delta Air Lines by 13.9% in the first quarter. Regent Investment Management LLC now owns 16,362 shares of the transportation company’s stock valued at $752,000 after buying an additional 2,000 shares during the last quarter.
  • Finally, Hosking Partners LLP raised its stake in Delta Air Lines by 10.0% in the first quarter. Hosking Partners LLP now owns 1,861,777 shares of the transportation company’s stock valued at $85,567,000 after buying an additional 169,097 shares during the last quarter.

Harvey’s Options Volatility Indicator

Conclusion

Delta Air Lines is trading at an all-time high after breaking out in late June; with bullish monthly passenger counts showing that DAL is firing on all cylinders and confirms further breakout with a solid trend advance toward $60.

It's obvious that Delta Air Lines remains far ahead of its legacy-carrier peers in terms of profitability. It also has a better balance sheet and tends to produce stronger free cash flow than its rivals.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the DAL Sept 15 2017 55.000 CALL at approximately $2.65. Place a pre-determined sell at $5.30.

Note: Add a protective stop loss of $1.05.

If you wish to receive more options trading recommendations similar to this, which will help boost your portfolio strategy, get on board with the members of Stock Options Made Easy.

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”Success is simple. Do what's right, the right way, at the right time.”

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Options traders are not successful because they win.

Options traders win because they are successful.

 


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”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.





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