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Delta Flies Back to S&P 500 Space

Zacks Equity Research

An airline industry stocks rally sprouted on Monday on the news of Delta Airlines Inc.’s (DAL) inclusion in the S&P 500 stock market index. Improved performance by this once-bankrupt global airline company helped it to attain the S&P 500 status.

Delta Airlines will replace BMC Software Inc. (BMC) after trading ends on Tuesday, as the information technology company has been acquired by private equity Bain Capital LLC. Delta’s addition to the S&P 500 GICS (Global Industry Classification Standard) Airlines sub-industry index energised most of the sector stocks, with most of them ending the day in green. Delta too impressed with its stock rising 9.40% in Monday trade on Nasdaq.

Notably, Delta used to be an S&P 500 component till Aug 2005, when it was dropped from the index ahead of its Chapter 11 filing of Bankruptcy protection. With the re-entry, Delta will be the second airline stock after Southwest Airlines Co. (LUV), to join the benchmark gauge.    

Atlanta-based Delta initiated a cost cut program to restructure its business post-bankruptcy filing and acquired Northwest Airlines in 2008 to become one of the largest airline companies in the world. Delta has performed impressively in the last few years and has considerably cut its debt to attain the $7 billion debt reduction target since 2009.

Encouraged by its strong performance and liquidity at the end of the second quarter, Delta resumed its dividend payment. The company paid a dividend of 6 cents per share on Aug 6 and authorized a $500 million share repurchase program to boost shareholders’ wealth.

Additionally, Delta continues to expand its operational base through the introduction of new services connecting various domestic and international destinations. The acquisition of a 49% stake in British carrier Virgin Atlantic from Singapore Airlines is expected to provide Delta a strong foothold in the lucrative transatlantic route and place it ahead of arch rival United Continental Holdings Inc. (UAL). We believe the operational and financial success of the airline behemoth has contributed significantly to its return to the S&P 500 club.

Delta currently carries a Zacks Rank #3 (Hold).

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