Delta Air Lines: Ready To Take Off

AMSTERDAM AIRPORT SCHIPHOL, AMSTERDAM, NOORD-HOLLAND, NETHERLANDS - 2018/01/07: Delta Airlines 767-300 seen on its way to the active runway at Schiphol airport. (Photo by C. V. Grinsven/SOPA Images/LightRocket via Getty Images)

Delta Air Lines Inc. (NYSE:DAL), backed by its highest top-line growth in seven years and peer-leading margins, has outperformed the legacy network peers with a year-to-date (YTD) price gain of c. 10.0%. United Continental Holdings, Inc. (UAL) and American Airlines Group Inc. (AAL) both have recorded negative price returns, while NYSE Arca Airline Index has only gained c. 10.5% YTD.

Buoyed by an expanding economy, the premium-focused carrier recently upgraded the revenue forecast for 2019 as it renewed its co-branded credit card partnership with American Express (AXP) till the end of 2029. The revenue diversification plans shield the company from a possible economic slowdown while cheaper fuel supply from the refinery cushions margins from energy price inflation as the fleet transformation continues. Furthermore, the strong balance sheet will allow the company to focus on further expansion with outstanding dividend yield and above-average share repurchases.

Despite the favorable outlook, DAL, in terms of forward PE, continues to trade at a discount to its five-year average trailing PE, suggesting a buying opportunity. However, amid trade tensions, headwinds to the forecast remain as DAL narrows its focus on premium travel, which makes it vulnerable to an economic slowdown.

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Disclosure: I/We have no investments in the stocks mentioned in the above article and don’t intend to open any within the next 72 hours. I wrote this article for myself, and it expresses my opinion. I/We receive no compensation, nor do I/We have any business relationship with any companies whose stocks are mentioned in the article.

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