Delta Air Lines
Shares of Delta Air Lines (NYSE:DAL) have been hit hard this year. The stock is down a whopping 32%. With that decline, one might think Delta is in complete disarray, but that is far from the truth. In fact the only blip for the company on an operating basis was the second quarter, when the company missed Wall Street estimates by the proverbial penny per share.
The flip side of that miss was a significant beat in the first quarter. The company beat Wall Street average estimates by 12 cents per share in the period ending March 31. Earnings might be a bit volatile thanks to oil price fluctuations, but Delta is solidly operating in the black.
For the full year, the company is expected to make $1.11 per share. Wall Street is looking for nearly double that amount in 2012, when the average estimate is $2.06 per share. That is a big jump in profits that investors can buy for a ridiculously low eight times 2011 estimated earnings.
I expect the stock to begin its ascent with a strong report this week. For the quarter ending Sept. 30, the average Wall Street profit estimate is 93 cents per share. Look for Delta to beat that number, excluding any losses due to hedging contracts going wrong. The bottom line is that planes are flying full and airlines just this week announced ticket price increases that are likely to stick. To the extent oil prices moderate for the remainder of the year and beyond, DAL shares could double in value from current prices.
A near mirror image of Delta — in a very positive way — is United Continental (NYSE:UAL). Like those of Delta, United shares are down in 2011 — 15% in this case. That is significantly better than the 30%-plus losses for Delta, but it still offers investors today an opportunity to buy on the cheap. Perhaps helping United is the fact the company has beaten Wall Street estimates in each of the past four quarters.
With that strong performance, estimates for the period ending Sept. 30 have been climbing over the last 90 days. Three months ago, the estimate for profits was at $1.94 per share. Today, Wall Street analysts are looking for $2.08 per share. They are likely to be proven correct Thursday.
For the full year, United is expected to make a profit of $3.74 per share. That number jumps 37% in 2012, to $5.13 per share. At current prices, United trades for just five times current-year estimated earnings. I would challenge you to find another stock expected to grow profits at such a rate while also trading for such a low valuation. I would buy UAL at these levels.
As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks.