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What to Expect from Delta Air Lines

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Delta Air Lines’ operating revenue

Delta Air Lines’ (DAL) operating revenue fell 3% in 2016 before gaining 3% in 9M17 (or the first nine months of 2017). Passenger and cargo revenue drove the decline in 2016 offset by other revenue. All of the segments drove the growth in 9M17. The Atlantic, Pacific, and Latin America regions drove the decline in 2016 offset by the domestic region.

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What led to the fall in EPS?

Gross profit remained flat in 2016 before falling 1% in 9M17. Operating expenses increased 6% and 7% in 2016 and 9M17, respectively. As a result, operating income fell 11% and 17% in 2016 and 9M17, respectively. Adjusted operating income fell 1% and 14% in 2016 and 9M17, respectively.

Non-operating expenses decreased in 2015 and 2016 due to lower interest expense. It increased slightly in 9M17 due to a slight increase in interest expense. Therefore, adjusted net income grew 8% in 2016 before falling 15% in 9M17. Adjusted diluted EPS gained 15% in 2016 before falling 11% in 9M17. Share buybacks have enhanced the EPS numbers.

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Dividend and price growth

Dividend per share grew 50% in both 2016 and 2017. Prices dropped 3% in 2016 before gaining 14% in 2017, which contributed to the flatness of the upward sloping dividend yield curve. The company’s forward PE of 11.4x and its dividend yield of 2.2% compares to a sector average forward PE of 7.9x and an average dividend yield of 1.4%.

How does DAL compare to the broad indexes?

The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.2%, a PE ratio of 23.4x, and a YTD return of 19.6%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.2%, a PE ratio of 22.3x, and a YTD return of 25.1%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 28.2x and a YTD return of 24.8%.

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What’s the operating revenue and EPS outlook?

Delta Air Lines is projected to grow its operating revenue by 4% and 5% in 2017 and 2018, respectively. The diluted EPS is expected to fall 7% in 2017 before gaining 14% in 2018.

Dividend ETFs with exposure to Delta Air Lines

The WisdomTree US Dividend ex-Financials Fund (DTN) has a PE of 19.6x and a dividend yield of 3%. The iShares Core Dividend Growth ETF (DGRO) has a PE of 20.6x and a dividend yield of 2.5%.

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