Can Delta Air Lines Keep Meeting Its High Expectations?

With shares of Delta Air Lines (NYSE:DAL) trading around $40, is DAL an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Delta Air Lines provides scheduled air transportation for passengers and cargo in the United States and internationally. Its route network is centered around a system of hub and international gateway airports. The company provides aircraft maintenance, repair, and overhaul services for other aviation and airline customers, as well as offers staffing services, professional security, and training services. As air transportation is becoming increasingly more popular, Delta Air Lines is poised to capitalize into the future.

Delta Air Lines will replace some of its aging aircraft with Airbus A321 aircraft, planes that use engines co-produced by General Electric (NYSE:GE) and Snecma of France, and assembled at GE Aircraft Engines in Evendale, Ohio. The A321s will replace less-efficient planes that Delta uses to fly domestically. “These new airplanes will improve the flying experience for our customers and benefit our shareholders,” said Delta CEO Richard Anderson in a news release. Delta will start using the 15 new A321s in 2016.

T = Technicals on the Stock Chart Are Strong

Delta Air Lines stock has been coasting higher over the last several months. The stock is currently trading near all-time highs and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Delta Air Lines is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Delta Air Lines options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Delta Air Lines options

30.57%

23%

20%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Monday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on DELTA AIR LINES’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for DELTA AIR LINES look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

2,400%

98,800%

14.63%

-500%

Revenue Growth (Y-O-Y)

4.89%

5.51%

5.68%

-0.26%

Earnings Reaction

6.13%

2.37%

3.24%

1.71%

Delta Air Lines has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Delta Air Lines’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Delta Air Lines stock done relative to its peers – Southwest Airlines (NYSE:LUV), United Continental (NYSE:UAL), and JetBlue (NASDAQ:JBLU) — and sector?

Delta Air Lines

Southwest Airlines

United Continental

JetBlue

Sector

Year-to-Date Return

47.94%

41.14%

21.12%

13.7%

31.97%

Delta Air Lines has been a relative performance leader, year-to-date.

Conclusion

Delta Air Lines provides services that are seeing increased demand as travel for work or leisure becomes more important. The company will replace some of its aging aircraft with Airbus A321 aircraft. The stock has moved higher in recent years and is currently trading near all-time highs. Over the last four quarters, earnings and revenues have been on the rise, which has pleased investors in the company. Relative to its peers and sector, Delta Air Lines has been a year-to-date performance leader. Look for Delta Air Lines to continue to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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