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Delta Up 3% on Bullish 2020 Outlook, Partners With Wheels Up

Zacks Equity Research

Thriving on the back of solid air travel demand, Delta Air Lines, Inc. DAL provided an upbeat forecast for 2020, following which shares of the company gained approximately 3% in yesterday’s trading session.

For next year, this Atlanta-GA based carrier anticipates earnings per share of $6.75-1 $7.75. The mid-point ($7.25) of the guided range lies above the Zacks Consensus Estimate of $6.98. Additionally, the airline predicts revenues of $49 billion for 2020, indicating a rise of 4-6% year over year. The Zacks Consensus Estimate for the same stands at $48.89 billion, suggesting 4.2% growth. The company’s free cash flow target stands at $4 billion for the period.

2019 View

For the current year, this Zacks Rank #3 (Hold) company expects revenues of $47 billion, implying a 7% rise year over year. The company’s revenues registered a steady rise over the past two years (4% in 2017 and 8% in 2018). Earnings per share are estimated in the range of $6.75-$7.25, hinting at an increase from $5.65 achieved in 2018. Free cash flow is forecast to be approximately $4 billion for the period with $3 billion expected to be returned to shareholders through $2 billion in buybacks and $1 billion in dividends. Additionally, pre-tax income is anticipated to be $6 billion for the ongoing year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Delta Air Lines, Inc. Price


Delta Air Lines, Inc. Price

Delta Air Lines, Inc. price | Delta Air Lines, Inc. Quote

Solid Track Record of Adding Shareholder Value

With a history of healthy free cash flow generation, the company has successively raised dividends over the past five years. It has a commitment to return 70% of free cash flow (20-25% in the form of dividends and 45-50% in buybacks) to shareholders annually. In 2018, Delta returned $2.5 billion to shareholders through dividends ($909 million) and repurchases ($1.6 billion). Sustaining its shareholder-friendly approach, in the first nine months of 2019, the company returned more than $2.4 billion to its shareholders through dividends ($721 million) and share buybacks ($1.8 billion).

Delta-Wheels Up Partnership

Delta’s subsidiary Delta Private Jets has entered into a long-term partnership with Wheels Up, a private aviation company. The agreement is expected to create one of the world’s largest fleet of private jets with 200 planes. On approval of the deal, expected early next year, Delta will hold a minority stake in the combined entity.

Per Delta CEO Ed Bastian, “This groundbreaking partnership will democratize private aviation — making the convenience of private jet travel accessible to more consumers.” He further added that the pact “is the latest step in Delta’s ongoing effort to build partnerships that extend Delta’s brand beyond its core business.”

Delta Safe From Boeing 737 MAX Grounding Woes

With no Boeing 737 MAX aircraft in its fleet, Delta has largely remained unaffected by the prolonged grounding of the controversial MAX jets, which encountered two deadly air crashes. While Delta is having a smooth ride with consistent growth, fellow industry players (with 737 MAX jets in fleet) like American Airlines AAL, United Airlines UAL and Southwest Airlines LUV are seeing muted growth with numerous flight cancellations and reduced capacity.
Southwest Airlines with the largest exposure to the MAX jets among the U.S. carriers saw its operating income decline by $435 million in the first nine months of 2019. Meanwhile, during the third-quarter earnings release, American Airlines stated that it expects the grounding to affect the company’s 2019 pre-tax income to the tune of approximately $540 million.

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