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Delta Tumbles: What Wall Street's Saying

Tickers in this article: DAL

NEW YORK (TheStreet) - Delta shares tumbled more than 5% on Wednesday after the airline narrowed its guidance for third-quarter passenger revenue growth.

The Atlanta-based airline said that passenger revenue per available seat mile (otherwise known as PRASM in airline lingo) rose 2% in August compared to the same period last year. Delta attributed the growth to continued strength in the U.S., which offset one point of negative revenue pressure from recent events in Russia, the Middle East and Africa.

For the quarter, it projected a range of 2%-3% of growth in its passenger revenue per seat mile, compared to 2%-4%, previously. Delta also said it expects the September-ending quarter's fuel price per gallon between $2.90 and $2.95 on an adjusted basis. Delta reported a completion factor for its mainline of 99.6% for August and an on-time arrival rate of 84.3%.

Shares closed down 5.2% to $38.82 on Wednesday, but are up 41.4% year to date.

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Here's what analysts are saying about Delta:

Jamie Baker, J.P. Morgan (Overweight; $54.50 PT)

DAL shares are currently holding up better than the last time guidance was affirmed at the low end. A second consecutive day of material jet fuel price declines is likely contributing. If one's thesis on DAL was predicated solely on achieving $1.25 in 3Q earnings, then there may be no reason to step up, in our view. However, if one's thesis is close to our own, that US airlines have turned a notable secular corner from which they are unlikely to deviate, and should continue closing their margin gap to other high quality industry transports and achieve peak operating margins 50% higher than anything seen in the past while simultaneously committing capital not solely to their fleets but rather to dividends and buybacks hence driving multiples higher over time...(quite the run-on sentence)...then we simply fail to identify anything in Delta's release that causes our conviction to waiver. Instead, we expect the pace of seasonal (sequential) capacity cuts to crescendo at Delta and elsewhere, which coupled with lower fuel prices and the time-tested observation that airline stocks are often best-purchased around the Autumnal equinox, suggest attractive risk/reward across the space heading into 2015.

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