This Analyst Says To Buy Delta, Now

Argus initiated coverage on Delta Air Lines, Inc. (NYSE: DAL) Monday with a Buy rating an $55 price target.Analyst John Staszak noted that "Delta is benefiting from strong industry fundamentals, including low fuel costs, reduced industry capacity, and rising demand for air travel."Staszak added the the company was upgrading its fleet with fuel-efficient aircraft while expanding globally through industry partnerships."Management notes that the new planes will also boost capacity and result in lower non-fuel costs and improved yields. We currently expect Delta's fuel costs to drop 15 percent in 2015, though this benefit will be partly offset by unfavorable fuel hedges. On the positive side, the company should continue to benefit from operating its own oil refinery," according to Staszak.Delta expected fuel costs of $2.25-$2.35 per gallon, down $0.50 to $0.60 from in 2014, which would save more than $2 billion for the company in 2015.The analyst's five-year earnings growth rate forecast was 20 percent as the analyst expected the operating margin to improve over the next two years.Staszak commented that DAL shares appeared favorably valued at 8.8-times the firm's 2015 EPS estimate, below the midpoint of the three-year historical range of 5-15. The firm set EPS estimates of $5.00 for 2015 and $5.95 for 2016."As earnings in the airline industry tend to be highly cyclical and volatile, we believe that airline stocks are most appropriate for speculative investors. Airline financials, labor negotiations, ticket prices, and fuel costs all represent potential catalysts for share price movement. In addition, the risk of a major terrorist attack or health scare that reduces airline travel is ever-present," Staszak cautioned.The $55 price target, combined with the dividend yield, implied a potential total return of about 26 percent from current levels.Delta Air Lines, Inc. recently traded at $45.50, up 1.38 percent.