Delta Air Lines, Inc. (NYSE:DAL) — Delta Airlines is one of the largest passenger carriers in the world and still enjoys a five-star Standard & Poor’s Strong Buy on its stock, even after running from under $34 late in June to a high at over $52 in December.
S&P notes the highly cyclical nature of the airline industry and strong price competition, as well as the risks associated with variable fuel costs, but also the benefits of Delta’s ownership of its own refinery. It projects a rise in earnings to $5.71 for 2016, up from $5.63 last year, due to recovering U.S. and global economies and an improvement in business travel.
They also expect the airline to continue with its liberal dividend strategy and stock repurchase plan. S&P recently cut their earnings target for 2017 to $5.44, but this may be an over-reaction since Delta’s Q3 EPS beat estimates. S&P assigns a multiple of 7X their 2016 EBIT-DAR , thus their 12-month price target is $56. DAL pays a dividend of 81 cents for a dividend yield of 1.6%.
Technically, DAL broke above a short-term trend line at about $38 late in July. The break was accompanied with an impressive gap followed by a quick thrust through its 50-day moving average at over $40, all noted in my July 21 Trade of the Day (Buy DAL $40, Target $46). The stock broke $42 in October, completing a saucer formation by slicing through its 200-day moving average at the $42 level.
In November and December, DAL proceeded to successfully attack the major resistance line (Double Top) at $49 – $50, and last December’s high at $52.77, missing a new high by 1 cent! This stock now consolidates in a pennant with heavy accumulation backing a further breakout. Those readers who purchased DAL in July at $40 should consider taking profits, but the chart pattern is strong and a break from the current shallow resistance could easily run the stock to $60.
For holders who bought at $40, or new buyers at $50, this is a position that should be protected with a stop-loss order at $48.50.
