DAL: Delta Flying High as a Stock to Buy

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Find outShares of Delta Air Lines (DAL) pulled back last week after the airliner lowered its sales outlook for the third quarter. My long-time readers know that DAL has been one of my top airline stocks, but does the conservative forecast change my recommendation?

delta dal stock to buyCompany Profile

With roots stretching back to 1929, Delta is one of the oldest and largest airline companies in the United States. Delta commands a workforce of over 78,000 employees and flies 165 million passengers each year. Delta offers service to 322 destinations in 59 countries.

In addition to commercial airlines, Delta also operates a number of air freight companies, small package delivery services and capital management companies. In the most recent fiscal year, DAL brought in $37.8 billion in sales and $10.5 billion in net income.

What Caused The Selloff

Last week, DAL lowered its third-quarter PRASM (passenger revenue per available seat mile) guidance to reflect 2% – 3% growth, which was down from the earlier guidance of 2% – 4%. Delta is being conservative due to rising jet fuel prices and near-term headwinds out of Russia, the Middle East and Africa.

However, I consider the selloff a knee-jerk reaction to a modest revision, and Delta is still looking great in the long run.

DAL has a strong financial position, due in part to the fact that its U.S. flights are at 87.6% capacity (up from 87.3% this time last year). Delta is also improving its connections to major U.S. hubs like New York and Seattle and is in the middle of a major re-fleeting process that is designed to keep costs low and fliers happy.

Sales and Earnings Outlook

So, the analyst community is still pretty bullish about DAL. For the current quarter, the consensus earnings-per-share estimate has risen from $1.1 to $1.2 in the past 90 days. For the following quarter, the consensus EPS estimate has risen from $0.59 to $0.66 during that time.

For fiscal year 2014 the consensus estimate has jumped from $3.04 to $3.22. All the while, Delta is expected to maintain 5% – 6% annual sales growth through the end of FY 2015.

Beyond Delta’s solid sales and earnings projections, DAL remains committed to its shareholders. A few months ago, Delta launched a new $2 billion stock buyback program and hiked up its quarterly dividend by 50%. Delta Airlines is flush with cash, which it is using to reward shareholders. For these reasons, DAL is a good buy in the wake of last week’s dip.

Current Ratings

DAL stock has held steady at a “buy” for the past twelve months running because of a one-two punch: An “A” for strong institutional buying pressure and “B-rated” rock solid fundamentals.

Breaking it down, Delta earns “A’s” on four of the eight fundamentals I graded it on: Operating margin growth, analyst earnings revisions, return on equity and cash flow. Delta also earns a “B” for earnings growth. The areas for improvement are Delta’s “C” in sales growth, “D” in earnings surprises and “F” in earnings momentum. Still,  as of this posting, I consider DAL an “A-rated strong buy.”

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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