Delta Air Lines (DAL) hit a new all-time high one day after the company hosted its annual Investor Day.
Delta management was bullish on the company's outlook and the event was well-received by investors. Delta guided for 2018 EPS growth of 10-15% with revenue up 4-6%. The company gave full year EPS guidance for the first time ever, calling for EPS of $5.35-5.70, which was in-line with estimates. Delta also said tax reform could add $1.00-1.25 in EPS to its forecast.
The real driver for Delta and the airline stocks is unit revenue. When unit revenue was declining two years ago, the airlines cut capacity (supply) to return to positive unit revenue growth.
Management said that for the first time in five years, all geographic entities are growing unit revenue in the fourth quarter.
Delta raised fourth quarter unit revenue guidance to +4% from its +2-3% prior forecast. The fourth quarter operating margin guidance of 11% came in at the low end of its prior range.
Delta expects to generate positive PRASM (passenger revenue per available seat miles or unit revenue) in every quarter next year. Guidance implies low single digit growth for that metric.
The company said its sustainable competitive advance drives top line growth. Delta's has a favorable domestic network that is balanced from East to West and has lower exposure to competitive hubs like Dallas. The company continues to focus on growing higher margin premium services and has partnerships and investments with carriers across the globe.
Delta hit a new all-time high today but the stock is still challenging resistance at the $56 level.
The company has a ~$40 billion market cap and the enterprise value is 5.2x EBITDA; in-line with the major US airlines but cheaper than American Air (AAL) and Southwest (LUV).