Today’s news: Delta Air Lines (DAL) reports second-quarter earnings beat and raises full-year guidance.
Delta Air Lines (DAL – yield 2.7%) reported strong second-quarter (2Q) results this morning, benefiting from higher fares and fuller planes. CEO Ed Bastian commented, “We had five of the top 10 revenue days in our history just within our last 30 days and we see that momentum continuing to grow throughout the year.”
Here are some of the key numbers:
Adjusted 2Q EPS (non-GAAP) $2.35 vs. $2.28 consensus estimate
Adjusted 2Q operating revenue $12.5 billion (a record)
2Q Operating margin 17.1%
2Q Free cash flow (FCF) $1.77 billion
Year-to-date FCF $2.5 billion
2Q share repurchases $268 million
Delta increased the quarterly dividend by 15%, from $0.35 to $0.4025 per share. At a share price of $60, the current yield becomes 2.7%. The company also completed repayment of the $1 billion short-term loan that was used to accelerate the repurchase of shares in the March quarter.
Here are new company guidance figures for the third quarter (3Q) and full year (FY) vs. previous consensus estimates or company guidance:
3Q EPS $2.10-$2.40 vs. $2.18 consensus
FY EPS $6.75-$7.25 vs. $6.98 consensus
FY revenue up 6-7%
FY FCF $3 billion or higher vs. $2-$3 billion guidance
This news could easily lift most airline stocks, considering that Delta is not the only airline benefiting from the strong economy. Keep in mind, however, that Delta is the only major airline that is not experiencing costly problems associated with the grounding of BA MAX 737 jets and associated flight cancellations. Delta’s results are therefore more bullish than what we’ll likely see with other airlines as they report quarterly results.
I recently mentioned that I’m concerned about Delta’s low projected 6% 2020 EPS growth rate. (That’s why I gave the stock a Buy recommendation rather than a Strong Buy.) I’ll continue to closely monitor that number in the coming weeks as I review updated consensus estimates from Wall Street. If the 6% number does not significantly increase in the coming weeks, I will retire DAL from the Growth & Income Portfolio. In the meantime, the 2019 YTD and projected numbers and the price chart remain bullish.
The stock has traded sideways for 18 months, and finally appears to be breaking past 60 to new all-time highs. This breakout moment is the most bullish time to own a stock. It’s not too late to buy DAL and capitalize on the company’s extreme successes. Buy.