Delta Air Lines (DAL) is trading at a new all-time high ahead of its second quarter report on Thursday, July 13. The company usually reports and 7:00 AM and management will host a call at 10:00.
Two days ago, Delta reported June operating data and provided some important metrics for its second quarter results. Delta said second quarter passenger unit revenue grew 2.5% year-over-year and guided for an operating margin of 18-19%. Delta's initial second quarter guidance from mid-April called for unit revenue up 1-3% with an operating margin of 17-19%, so the second quarter came in towards the high end of expectations.
With pertinent top line and margin profiles set for the second quarter, the focus turns to the company's guidance for the third quarter, which will come in conjunction with second quarter results. Third quarter unit revenue is expected to improve from the 2.5% growth in the second quarter.
Delta is hitting new all-time highs despite the ‘transition year' because the unit revenue and margin trends are expected to improve throughout the year. The headwinds from higher oil prices and labor costs peaked in the first quarter and discipline with respect to capacity growth has put the unit revenue trend in Delta's favor.
Another thing working for the stock is the very reasonable valuation: Delta's enterprise value of ~$47 billion is just 5.3x EBITDA estimates for the year. This is cheap relative to most industrials as the airline business is inherently risky and not all that attractive. However, the M&A in the industry following the financial crisis gave big players like Delta pricing power and a more attractive business model.
Delta's 2018-2020 framework includes a 16-18% operating margin, 15%+ earnings per share growth, and $4.5-5.5 billion in free cash flow.