Investors Could Make Almost 20% Buying Delta Stock Right Now

Reviewing Delta Air Lines, Inc. DAL's third quarter results, Imperial Capital upgraded shares of the airline and raised its price target, with the new price target implying 19 percent upside from current levels. The firm attributed the actions to higher unit revenues.

The firm upgraded its rating from In-Line to Outperform and lifted its price target from $50 to $63.

Analysts Michael Derchin and Adam Hackel noted that Delta reported revenues, EBITDAR and earnings for the latest 12 months ended Sept. 30 of $40.5 billion, $8.2 billion and $4.79 per share, respectively. As of Sept. 30, the firm noted the airline had cash and cash-equivalents of $2.3 billion and long-term debt of $11.2 billion.

The analysts think Delta could grow unit revenues in 2018 "due to pricing power in its key domestic hubs and improving international results." While the company's fourth quarter earnings per share estimate assumes a 2-4 percent PRASM, or passenger revenue per average seat mile, increase, the firm said it assumes capacity to increase 2 percent, unchanged from its previous estimate.

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Additionally, the analysts expect PRASM to increase 3.5 percent, faster than their earlier expectations of 1.5 percent, CASM, excluding fuel, to decline 0.5 percent versus their earlier estimate for a 3 percent drop and an average jet fuel price of $1.85 per gallon compared to their previous estimate of $1.70.

Accordingly, Imperial Capital sees operating margins of 12.5 percent for the fourth quarter compared to its previous estimate of 13.5 percent.

While lowering the fourth quarter earnings per share estimate from $1.11 to $1.08, the firm raised its 2017 estimate from $5.02 to $5.05 and 2018 estimate from $5.45 to $5.75. The firm clarified that its 2018 estimate assumes higher-than-initially-estimated capacity increases and PRASM, lower-than-initially-estimated CASM, excluding fuel, and higher-than-initially estimated average jet fuel.