Should You Consider Delta Air Lines in Your Portfolio?

With shares of Delta Air Lines (NYSE:DAL) trading around $33, 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 also 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 is making fundamental changes to its frequent flier program and will reward those who buy its priciest tickets, as opposed to those who fly the most miles. It will be the first major carrier to make such a change and other airlines will certainly be watching to see how travelers react to the change. Delta said Wednesday that the 2015 SkyMiles program will better recognize frequent business travelers and leisure customers who buy premium fares. It’s a bid to lure the much-sought-after business traveler, but it will affect everyone who flies with the carrier and uses the program. Delta had been moving in the direction of a revenue-based program. In January 2013, the company said that its 2014 frequent fliers would need to spend at least $2,500 to qualify for the lowest level of elite status. Previously, they could qualify on miles alone.

T = Technicals on the Stock Chart Are Strong

Delta Air Lines stock has been doing well in the last several years. The stock is currently trading near all time highs and looks set to continue this path. 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 signal neutral to bullish price action in the near-term.

DAL

(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

36.16%

20%

18%

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

Put IV Skew

Call IV Skew

March Options

Flat

Average

April Options

Flat

Average

As of today, there is an 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 small 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

98,800%

14.63%

-500%

-93.33%

Revenue Growth (Y-O-Y)

5.51%

5.68%

-0.26%

1.03%

Earnings Reaction

2.37%

3.24%

1.71%

10.43%

Delta Air Lines has seen rising 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), JetBlue (NASDAQ:JBLU), and sector?

Delta Air Lines

Southwest Airlines

United Continental

JetBlue

Sector

Year-to-Date Return

22.64%

19.32%

24.85%

6.56%

19.34%

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 is making fundamental changes to its frequent flier program and will reward those who buy its priciest tickets. 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.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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