Delta Jumps Into Buy Zone On Bullish Revenue Outlook

Shares of Delta Air Lines ( DAL ) burst higher Thursday, as the carrier kicked off its Investor Day with a solid 2018 forecast and a fourth-quarter outlook that included more bullish expectations for unit revenue but weaker margins.

[ibd-display-video id=3023531 width=50 float=left autostart=true] Delta on Thursday also officially announced that it would buy 100 A321neos from Airbus ( EADSY ), a snub to Boeing ( BA ), with whom relations have cooled .

Shares of Delta jumped 3% to 55.25 in the stock market today , once again clearing a cup-with-handle buy point of 54.16. American Airlines ( AAL ) and United Airlines ( UAL ) climbed 0.2% and 0.4%, respectively, both closing off session highs.

Expectations were high ahead of the Investor Day, and Wall Street's main take-aways could revolve around what the carrier has in store for next year as costs for jet fuel and labor rise and some of the nation's biggest airports undergo renovations.

Delta said in a presentation that it was targeting 2018 earnings per share of $5.35-$5.70, higher than Zacks estimates for $5.41. The carrier also said it was "addressing nonfuel unit costs" - which became a source of investor angst during third-quarter earnings season - aiming for nonfuel unit costs of flat to up 2% next year.

Delta expects unit revenue - which measures an airline's operating efficiency by gauging sales from passengers as they relate to an airline's flight capacity - to be up around 4% in the fourth quarter.

That was more aggressive than an outlook given in October for a 2%-4% increase. Delta said the fourth quarter was "producing strong revenue trends with positive unit revenue in all geographic entities." JetBlue (JBLU) on Tuesday also raised its Q4 unit revenue outlook. United and Southwest Airlines (LUV) raised their Q4 unit revenue forecasts last week.

JetBlue, which briefly hit a buy point on Tuesday before reversing sharply lower, fell 1.4%. Southwest Airlines advanced 1.1%, hitting a new high and becoming further extended from a recent breakout.

"Traditionally, the airlines use investor days to discuss significant cost and revenue initiatives," Cowen analyst Helane Becker said in a research note on Monday. "At this point, Delta has been there, done that. Delta continues to need to prove their margins can improve from current levels."

However, the company said that fourth-quarter operating margins were on track to come in at around 11%, compared to an earlier forecast for 11%-13%, with higher fuel prices dragging the figure lower.

Delta expects Q4 flight capacity to be up 2.5%-3% vs. earlier expectations for a roughly 2% increase. That reflects Delta's coverage of Virgin Atlantic flights in the trans-Atlantic market.

And the carrier expects Q4 nonfuel unit costs to increase 5%-5.5%. Those higher costs were pushed higher by "continued investment in our people and product combined with accelerated depreciation of aircraft retirements."

Delta last week said it had agreed to enter into a joint venture with Canadian low-cost carrier WestJet, a move that strengthens Delta's international service.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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