Why Delta Air Lines (DAL) Is Up Today

Tickers in this article: DAL

NEW YORK (TheStreet) -- Delta Air Lines  was rising 3.83% to $32.26 on Tuesday after the company reported higher-than-expected fourth quarter profits.

Delta, now the third-largest U.S. airline behind American Airlines Group  and United Continental Holdings  , used lower fuel costs and higher fares to achieve a fourth-quarter net income of $8.5 billion, or $9.89 a share. That included a non-cash gain of $8 billion from a tax benefit. After excluding items such as the tax benefit, Delta posted a profit of $558 million, or 65 cents a share, compared with the average analyst estimate of 63 cents, according to Thomson Reuters I/B/E/S. In the same period one year earlier, Delta had a profit of $7 million, or one cent a share.

Quarterly revenue increased 6% to $9.08 billion, compared to analysts' target of $9.04 billion. Delta's yield, which measures the average airfare paid per mile flown, rose 4% to 17.05 cents. Operating expenses rose 2% but costs of aircraft fuel and related taxes dropped 7%. Passenger revenue rose 9% in the United States, 18.5% in Latin America and 1.9% in Europe in the fourth quarter but fell 1.6% in the Pacific sector.

Delta topped estimates and projected strong growth for 2014, but the company has faced some questions on its Seattle hub buildup.

TheStreet Ratings team rates Delta Air Lines as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate DELTA AIR LINES INC (DAL) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations, solid stock price performance, impressive record of earnings per share growth and revenue growth. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to other companies in the Airlines industry and the overall market, DELTA AIR LINES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 150.75% to $1,161.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 138.79%.
  • Powered by its strong earnings growth of 29.26% and other important driving factors, this stock has surged by 126.86% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DAL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • DELTA AIR LINES INC has improved earnings per share by 29.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DELTA AIR LINES INC increased its bottom line by earning $1.19 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($3.13 versus $1.19).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 14.8%. Since the same quarter one year prior, revenues slightly increased by 5.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • You can view the full analysis from the report here: DAL Ratings Report