On Aug 6, 2014, we issued an updated research report on
Delta Air Lines Inc.
). The carrier reported impressive second-quarter 2014 results
beating the Zacks Consensus Estimate on both lines owing to
strength in corporate and domestic revenues. The Atlanta-based
carrier currently carries a Zacks Rank #2 (Buy).
Delta remains committed to improve operational performance, improve
margins and make balanced capital deployment to increase
shareholder returns. We believe Delta will perform impressively
this year on a strong domestic market, capacity discipline,
corporate revenue gains and synergies from revenue initiatives.
These trends are expected to result in single-digit year-over-year
improvement in unit revenues on 2-4% capacity expansion, leading to
15% to 17% margin expansion in the third quarter. Meanwhile, the
carrier's new long-term targets include 11-14% operating margin,
10-15% EPS growth, free cash flow of $3 billion and a return on
invested capital of 15%.
The carrier's joint ventures have also proved rather profitable on
being operated as an integrated business, which represents around
30% of the industry capacity in the trans-Atlantic route. Delta's
joint venture with Virgin Atlantic is getting positive response
from corporate customers availing the U.S.-Heathrow travel route.
Delta expects trans-Atlantic revenues to grow 5-6% on capacity
growth of 3%.
Delta is progressing well on improving ancillary revenues and plans
to invest $2.0-$3.0 billion per year to enhance its fleet
structure, amenities, products and technological base. Further, the
carrier has upgraded its Economy Comfort seating in all
transcontinental flights operating from New York's J.F. Kennedy
Airport to Los Angeles, San Francisco and Seattle.
However, Delta's international operations might be impacted by
geo-political turmoil across certain nations. Devaluation of Yen
continues to affect Delta's performance in the Pacific as well.
Further, the company's RASM (revenue per available seat miles) will
likely be impacted by 3-4 points owing to currency control issues
in Venezuela, which forced Delta to pull out from the country.
Moreover, Southwest Airline Co.'s (
) debut in the Caribbean skies will also increase competition for
Delta, which recently declared plans to resume its operations in
Barbados after a gap of 3 years.
Key Picks from the Sector
Other well-placed stocks worth considering within this sector
include Republic Airways Holdings Inc. (
) and Spirit Airlines Inc. (
). Both the stocks currently sport a Zacks Rank #1 (Strong
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
REPUBLIC AIRWAY (RJET): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
SPIRIT AIRLINES (SAVE): Free Stock Analysis
To read this article on Zacks.com click here.