Delta Air Lines, Inc. (NYSE:DAL) is one of the largest passenger carriers in the world and carries a five-star S&P Capital IQ “strong buy” on its stock, which notes the highly cyclical nature of the airline industry and strong price competition, as well as the costs associated with variable fuel costs.
However S&P projects a rise in earnings to $5.95 for 2016, up from $5.63 last year, due to recovering U.S. and global economies and an improvement in business travel. Delta is expected to reduce debt substantially by the end of this year.
Further, they expect the airline to continue with its liberal dividend strategy and stock repurchase plan. Although S&P Capital recently cut its earnings forecast to $5.96 from $7.13 (due to the uncertain geopolitical situation in Europe and the stronger dollar), this may be an overreaction. Delta’s per-share earnings beat second-quarter estimates even though revenues fell short due to currency fluctuations.
S&P’s 12-month price target is $56. DAL stock increased its annual dividend to 81 cents, yielding 2%.
Technically, DAL broke above a short-term trend line at about $38. The break was accomplished with an impressive break-away gap followed by a quick thrust through its 50-day moving average at over $40. Above-average volume accompanied the breakout, which is currently consolidating around the 50-day moving average.
Since the MACD is slightly overbought, I expect this stock to fall slightly, offering us an opportunity to buy it under $40 with a trading target of $46 (just over the 200-day moving average) for a potential trading return of 15%.
