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Stock Market News: Delta Flies Higher; UnitedHealth Perks Up

Dan Caplinger, The Motley Fool

Thursday morning marked a somewhat volatile session for the stock market, as most major benchmarks opened sharply higher before giving up some ground shortly thereafter. As of 11:15 a.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 143 points to 27,004. But gains in other indexes were more limited, as the S&P 500 (SNPINDEX: ^GSPC) picked up 4 points to 2,997, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) climbed 7 points to 8,210.

A favorable reading on inflation at the consumer level seemed to support the idea that the Federal Reserve will move forward with a planned rate cut as soon as later this month. Yet company-specific issues like earnings and regulation will keep playing a role in the performance of the broader market, and both Delta Air Lines (NYSE: DAL) and UnitedHealth Group (NYSE: UNH) saw their share prices rise following upbeat news.

Delta gains altitude

Shares of Delta Air Lines were up between 1% and 2% after the airline giant reported its second-quarter financial results. Total revenue and adjusted pre-tax income for the company hit record levels during the period, helping to drive a 32% rise in adjusted earnings per share compared to the prior-year quarter.

Delta-labeled aircraft on white flooring under a dark sky near sunset.

Image source: Delta Air Lines.

Delta was firing on all cylinders. A strong environment in both leisure and business travel helped to push unit revenue higher by nearly 4% from year-ago levels, and the airline also got a boost from renegotiated terms with American Express in connection with its branded credit card. Delta also did well to keep expenses under control, with nonfuel unit costs rising just 1.4% as efficiency initiatives, better operational discipline, and a shift in the company's fleet of aircraft all helped produce savings.

The airline sees the good times continuing as well. Third-quarter guidance includes expected earnings of $2.10 to $2.40 per share, with total revenue per available seat mile set to climb 1.5% to 3.5%. CFO Paul Jacobson also believes that Delta will be able to achieve its 1% cost growth target for the year, helping to bolster the bottom line.

Shareholders got to benefit from the good times as well, as Delta declared a 15% increase to its dividend. With payments of $0.4025 per share coming quarterly in the future, investors will see their income fly higher along with Delta's business.

A clean bill of health at UnitedHealth

Shares of UnitedHealth Group climbed 5% Thursday morning. The health insurance and wellness-focused business got good news from the federal government, as a proposed change that would have potentially hit UnitedHealth's pharmacy benefit management (PBM) business now appears to be off the table.

UnitedHealth and other industry leaders had feared that a proposal from the Trump administration might change the way that the pharmaceutical industry deals with particular payments under the Medicare program. Under attack were certain rebate payments that drugmakers offer to intermediaries like drug distribution companies and pharmacy benefit managers in exchange for negotiating prices for insurance plans. Officials in Washington had hoped that some of the money currently going to UnitedHealth and its peers might instead go toward lowering patient costs.

However, government officials said Thursday morning that they would withdraw the proposal. The Congressional Budget Office had estimated that the plan might well have little or no impact on drug pricing and would instead cost the federal government due to higher premium costs resulting from premium subsidies.

UnitedHealth can still expect to see efforts to lower drug prices to continue. But with the immediate threat to its PBM business seemingly in check, UnitedHealth shareholders hope that higher profits will persist for the foreseeable future.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.