Delta Air Lines Inc. (DAL, Financial) reported Q2 2015 earnings (on an adjusted basis) of $1.27 per share, beating analyst´s estimates of $1.23. Further, higher-than-expected revenues contributed to that earning´s beat. The company reported quarterly revenues of $10.71 billion, beating estimates of $10.63 billion, with growth of 0.75% year-over-year.
When looking at the bottom-line, net income of $1.48 billion for the quarter increased by 85% year over year, along with diluted earnings per share of $1.83. The airliner benefited from low fuel costs that will probably continue in the next months, with an expectation of fuel costs per gallon ranging from $1.90 to $2.00. This view is also shared by the CEO who said, "significant fuel savings in the September quarter should allow us to produce another record quarter with more than 30% EPS growth," said CEO Richard H. Anderson. We must mention that if we include special items, Delta’s earnings came in at $1.83 per share.
On an annual basis, Wall Street expects earnings per share of $4.43 on revenue of $40.98 billion. Among the reasons of these good results, domestic revenues climbed almost 5% to $4.71 billion, with passenger and cargo revenues declining (by 1% and 10% respectively) but other revenues increased by 21% from the previous year.
Most analysts have a bullish opinion on the bank: 2 Hold Ratings, 11 Buy Ratings. When looking at the consensus price target, it stands at $58.85 according to MarketBeat, giving an interesting 33.77% upside potential.
The stock sells at a trailing P/E of 30.9x, trading at a premium compared to a median of 16.2x for the industry. To use another metric, its price-to-book ratio of 3.88x indicates a premium versus the industry median of 1.93x, while the price-to-sales ratio of 0.89x is above the industry median of 0.52x.
I think that the current market price is at attractive levels, as well as other airline stocks, as a result of lower fuel prices. Further, analyzing the industry, we know that there are natural barriers to entry and obviously this is a good sign for existing airlines. Moreover, the company will continue making strategic investments like buying subsidiaries. Finally, the share price has plummeted by 10.6% in a year-to-date basis, and the company has increased its buyback program even more than projected. In simple words, this means that the firm thinks the stock is undervalued and I think it will be a nice bet for the rest of 2015.
Hedge funds managers such as John Burbank (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio) initiated a new position in the stock with 9,119, 5,870 and 2,280,253 shares, respectively. The share price has lost 3.45% when compared to its closing price at the end of March.
Disclosure: Omar Venerio holds no position in any stocks mentioned
