With a strong consumer, rising business confidence and
stable oil prices, it should come as no surprise that the
airline sector has been performing extremely well this year. In
fact, many companies in this segment have more than tripled the
market’s return from a YTD look, with gains in excess of 80%
not uncommon.
The surge has been pretty widespread too, with both so-called
legacy carriers and discount airlines seeing strong
performances. One company in the legacy space that has been
especially impressive and a great example of this incredible
trend is undoubtedly
Delta Airlines (
DAL
)
.
Delta in Focus
Delta is, following the merger between American and US Airways,
the second biggest airline in the world. The firm is probably
most famous for its hub at Hartsfield-Jackson airport in
Atlanta, though it has a big presence in Detroit, Minneapolis,
and New York City as well.
The stock was cleared for takeoff at the start of 2013, and it
really hasn’t looked back besides some minor turbulence in
April. DAL has actually more than doubled so far this year,
putting up a 130% gain YTD, including a 50% move higher in the
past six months alone.
This is obviously a huge move, and especially so for a company
in a pretty cutthroat industry, but there is plenty of reason
to believe that this can continue as we head into 2014 if you
look at the company’s profit and growth outlook for the coming
year.
Delta Earnings Outlook
Thanks to the strong industry outlook and the pressure that is
currently on oil prices, many analysts are looking for DAL to
continue to grow earnings in the months ahead. Current
estimates peg this quarter’s earnings growth (yoy) at 121%,
while current year growth is expected to be in the high double
digits, hitting 70% year-over-year.
These figures also represent how bullish analysts have become
on DAL’s earnings prospects in just the past few months.
Estimates for the current quarter have surged from 50 cents a
share 90 days ago to 62 cents a share today, while current year
estimates have jumped by 11% over the same time period.
While this increased expectation might be troubling to some,
DAL does have a pretty good track record in earnings season.
This includes a pretty solid history of earnings beats-three
straight beats and only one miss in the last eight reports-so
there is plenty of reason to believe that DAL will have no
trouble matching estimates once again next year.
Thanks to these factors and the impressive trend in the
economy, DAL has earned itself a Zacks Rank #1 (Strong Buy).
And since DAL was just added to the #1 Rank group on Friday
December 13
th
, investors shouldn’t worry that they have missed their flight
to profits with this impressive stock.
Bottom Line
The economy is humming along and cyclical sectors have been a
prime beneficiary from this surge in sentiment. One segment
that has really been a winner from a stock perspective is the
airline industry.
And with some of the other factors at play in the economy-such
as surging consumer confidence and lower oil prices-a play in
this sector seems like a no-brainer. This is particularly true
when you consider that the
Zacks Industry Rank for the airlines
is 27 out of 260, putting it within the top 10%.
Yet, while a broad play on the airline space could be a very
interesting idea, a look to DAL could be even better. This has
been one of the best performing airlines so far in 2013, and
with its strong competitive position and huge scale, this could
be a big winner-and top pick-for 2014 too.
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DELTA AIR LINES (DAL): Free Stock Analysis
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