Raymond James Sees Favorable Positioning In Delta Air Lines, But Market Unimpressed

The latest Delta Air Lines, Inc. (NYSE:DAL) investor day highlighted sustainability of the company’s earnings through the cycle, and the airline's commentary on near-term demand and long-term positioning was favorable, according to Raymond James.

The Analyst

Analyst Savanthi Syth maintains an Outperform rating on Delta Air Lines.

The Thesis

Delta seems ahead of its peers in laying the foundation for the long-term sustainability of its business, Syth said in a Friday note. (See the analyst's track record here.)

Delta also emphasized the opportunity in its product strategy, she said. 

The market was unimpressed by the company’s projections, with the midpoint of the 2019 EPS guidance being 2-percent short of Street estimates, Syth said. The lower guidance partly reflects higher non-operating expenses.

While the lower-than-expected guidance may justify some selloff, the 5-percent decline in Delta’s share price “appears to be discounting a higher probability of a recession” or the assumption that EPS growth in 2019 will be fuel-driven, which may not be the case, the analyst said. 

The midpoint of the implied projection of around 2-percent unit revenue growth is higher than the non-fuel unit cost expectations, according to Raymond James. 

Even if economic growth slows in 2019, there should be upside to U.S. airline stocks like Delta due to earnings growth that is not necessarily fuel-driven, Syth said. In the event of a recession, airline stocks may face additional pressure, the analyst said.  

Only Alaska Air Group, Inc. (NYSE:ALK) has yet to provide its monthly guidance update, and there are few catalysts through the end of the year, she said. 

Price Action

Delta shares were up 0.86 percent at $54.01 at the time of publication Friday. 

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