Can Delta Air Lines Continue to Fly Higher?

With shares of Delta Air Lines (NYSE:DAL) trading around $25, 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 reported earnings on Tuesday morning with net profit climbing $444 million year-over-year to $1.2 billion or $1.41 a share. Analysts had expected Delta to post earnings of $1.36 a share. GAAP income was $1.4 billion, or $1.59 a share. Delta’s total operating revenue was $10.49 billion, compared to $9.92 billion a year ago and topping estimates of $10.47 billion. Delta’s earnings report repeatedly cited the hard work of the company’s employees as a reason for the successful quarter, and the company announced a $249 million profit-sharing expense “in recognition of Delta employees’ contributions to the company’s financial performance.”

T = Technicals on the Stock Chart Are Strong

Delta Air Lines stock been doing well in the last several years. The stock is currently trending higher and is trading at all time high prices. 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

33.91%

0%

0%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December 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 very 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 Mixed 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 Q2

2013 Q2

2012 Q1

2012 Q4

Earnings Growth (Y-O-Y)

14.63%

-500.00%

-93.33%

-98.61%

Revenue Growth (Y-O-Y)

5.68%

-0.26%

1.03%

2.42%

Earnings Reaction

3.81%

1.71%

10.43%

1.24%

Delta Air Lines has seen decreasing earnings and rising 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

115.70%

59.77%

33.23%

28.67%

60.34%

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. A recent earnings release has the markets upbeat about the company. The stock has moved higher in recent years and is currently trading near all time high prices. Over the last four quarters, earnings have declined while 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.

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