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Delta's shares will reach $48 by 10.06.2015
5 september 2015

Delta Air Lines (DAL), a major US airline, one of the founders of the SkyTeam alliance. Route network covers countries of South America, Europe, Asia, Africa, the Middle East and the Caribbean. The company is a major carrier on routes across the Atlantic.Delta is the world's largest operator of the Boeing 767.

The company recently released operating results for August. Despite a 6.5% y-o-y decline in revenue per passenger seat and per one mile (mainly due to the devaluation of currency), passenger traffic rose 3.9% y-o-y to 20.8 bn passenger miles. The passenger load factor fell by 0.3 pp to 87.3%.

In addition, the company released a robust financial report for Q2 2015. Quarterly revenue climbed 0.8% y-o-y to USD 10,707 bn, outpacing expectations by 1%. Adjusted EPS jumped 22% y-o-y to USD 1.27, outstripping forecast by 6%. Slow revenue growth was mainly connected with the devaluation effects. At the same time, revenue growth on domestic routes was quite noticeable (+4.9% y-o-y). Adjusted net interest margin rose 1.2 pps y-o-y. Profitability growth was driven by lower fuel prices and reducing debt. Decrease in the debt burden in the near future could lead to an increase in the debt rating of the company’s bonds, which will reduce the company's cost of borrowing and will positively affect profitability of Delta Air Lines.

Dividend was up by 50% to USD 0.135 in Q2. The company continues to buy back shares and spent USD 925 mn for this purpose (USD 225 mn a year ago).

We believe that lower fuel prices and recovery of the global economy will increase the company’s traffic, which along with buyback and higher dividend will boost the company’s share price in the mid-term.

We left our mid-term fundamental valuation of Delta Air Lines (DAL) shares unchanged at USD 56. The short-term technical target is USD 48.

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Delta's shares will reach $48 by 10.06.2015

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