|Delta Air Lines: Breaking Higher|
Jul. 16, 2019 12:07 PM ET
About: Delta Air Lines, Inc. (DAL)
Stone Fox Capital
Long/short equity, growth at reasonable price, research analyst, Deep Value
- Delta Air Lines hit an all-time high following Q2'19 results. The company isn't solely dependent on airline travel growth due to favorable AmEx deal.
- The stock is due for multiple expansion with the airline sector trading at transport sector low P/E multiples.
- A simple 13 P/E multiple places a $100 target on Delta.
After about 18 months since first reaching $60, Delta Air Lines ( DAL) is finally breaking to new all-time highs. The airline sector has long been poised for a rally to new valuation multiple levels more consistent with other transport stocks so this initial new high should only be the start.
Long Awaited Breakout
Delta first approached $60 going back to January 2018. On Friday, the stock hit a new high of $62.24 and had its highest close at $61.65. The general indication is that the stock is breaking out to new highs, but the key is a follow through rally next year.
The amazing part of the investment story is that analysts continue to expect a solid trend of earnings growth. Like any industry, the airlines have had some ups and downs lately due to volatile oil prices and capacity growth, but the end result is still an industry where profits are forecast to flow higher.
The only thing holding back the stock of Delta Air Lines is the fears that the airline industry will revert back to the one of old when the next recession starts. Despite reporting years of profits, the stock still trades like massive losses are just around the corner while one analyst forecast a 2023 EPS of $10.
Source: Delta Air Lines SA Earnings Estimates
The recent Q2'19 results reinforce this concept. Delta reported a non-GAAP EPS of $2.35 for a $0.07 beat.
So in an economy where the market wants the Fed to cut interest rates, Delta reported revenue growth of 9% to reach $12.5 billion and an EPS that surged an incredible 32% from last Q2. The airline even raised 2019 guidance by $0.25 at the midpoint.
continues at seekingalpha.com